As the backbone of the industry, DeFi will continue to grow through the crypto winter

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Source: Adobe Stock / Ivan Kmit

Mariano Di Pietrantonio is the Head of Strategy at MakerGrowth, a central unit of MakerDAO, the lending platform that runs the DAI stablecoin.__________

This crypto winter needs no introduction. Many within crypto are deeply concerned about the thoughts of Sam Bankman Fried, the former face of the industry now sitting in a jail cell. Collectively, the crypto space is questioning what we believe to be true about our own industry, whether we can truly judge success, and how to prevent it from happening again.

The impact of recent events on the perception of crypto has been dire, and compounded by the fact that this low follows a period of highs, in which novice retail investors were empowered to join the field in full swing. crypto boom. Now, skepticism affects even the most reputable centralized crypto projects. Companies that have never been questioned before must show “proof of reservations” and radically increase their transparency to survive.

The crypto finance space is currently very far from gaining public trust. Although good ideas and intentions exist, there are few guarantees that they will not be corrupted and exploited.

With that in mind, the praise that DeFi (decentralized finance) is receiving from certain quarters is to be expected. Removing the centralized component of crypto-finance and instead providing trustlessness through decentralized protocols and code, community voting systems, and built-in transparency for decision-making and assets under management has understandable appeal.

While the centralized crypto world talks about “auditing” as if the concept is new, DeFi has been humbly putting those ideals into action for nearly a decade.

Away from the hype, celebrity endorsements and hero worship of the past year, DeFi has quietly built a better financial world – and it will continue to build through what comes next.

The continued appeal of DeFi

Although they have had our own bulls and bears – for example, the DeFi summer of 2020 and the apparent DeFi winter of 2022 – the tangible capabilities of DeFi have continued to grow. Consumer financial institutions and large corporations, such as Tesla, Monetalis, and Huntingdon Valley Bank, have embraced DeFi to solve real-world problems. Through the ends of 2022, MakerDAO’s decentralized community has quietly managed a portfolio of over $7 billion in AUM (assets under management), increasing and decreasing that number in sustainable, responsive responses to market events.

Removing centralized intermediaries from the financial process is something those of us in DeFi knew would be the most important factor to watch in the long run. Basically, the value of crypto is derived from the immutability of the blockchain as a database. Decentralization, transparency and community action are an integral part of this world.

Even regulation, which certainly has its place in the future of finance, cannot replace the need for trust enshrined in code. Regulation alone cannot guarantee the absence of corruption; a fact that is also true outside of crypto. We can take as evidence examples of corrupt corporate entities that hid secrets from regulators – Enron and Theranos immediately come to mind. It should also be remembered that Enron, like the management of FTX, campaigned for more regulation in its field.

While regulation provides a way to hold the guilty parties accountable, it doesn’t always deter bad actors. This objective requires decentralization from the outset.

DeFi provides essential liquidity

A crucial fact, understood by those in DeFi, is that using market capitalization as an indicator of the value of a company or a token is wrong. The latest bull cycle relied on market capitalization to judge the seemingly booming health of certain crypto exchanges and other centralized entities.

But, much like Googling a public figure’s net worth, it can be misleading. What matters is not the overall net worth or market capitalization, but rather the liquidity of the assets.

DeFi protocols can be used to provide liquidity to the rest of the market, proving their integral contribution. MakerDAO provides liquidity for crypto lending and borrowing, while other DeFi protocols provide liquidity pools to allow users to lock crypto assets into smart contracts, providing liquidity for decentralized exchanges (DEXs). A more liquid market is associated with less risk, which means a safer environment for users.

On a mission to build

In 2023, the DeFi space will build on this value to improve service offerings. So far, CeFi has been a simple hotspot for newcomers to crypto thanks to its easy-to-use apps, fun incentives, brand recommendations, and reliance on centralized teams to take care of the details. . DeFi tends to require more research from its users, especially in a DAO (decentralized autonomous organization) where token holders vote on the direction of a project. The fact that due diligence, reporting, and decision-making are not absorbed by a centralized entity naturally makes DeFi services more complex.

Improving the UX (user experience) and UI (user interface) of DeFi’s many functions will allow us to open the future of finance to new audiences and achieve the universal goal of financial inclusion.

Beyond that, for many projects the road to full decentralization is incomplete. This year’s events have given new impetus to more projects in our industry to open up community voting and record on-chain transactions and decisions.

The roadmap for many decentralization projects will be accelerated in 2023, with DeFi developers already busy bringing these plans to fruition.

This radical move toward transparency, accountability, and community action will drive the DeFi agenda forward and ultimately help us leave centralized corruption in the past. Right now, the developers at the center of this movement are determined to increase their precious output even further. Instead of allowing the crypto space to play by the whims of spectators and the actions of a corrupt few, following DeFi’s lead will ensure that we emerge from the bear market as long-term winners.

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Read more: – New report shows DeFi outperforming traditional finance in market conditions – A look at DeFi’s untapped potential

– What DeFi Offers Beyond Loans for Crypto Speculation – Top 7 Decentralized Derivatives Trading Platforms

– From Crypto Winter to Winter Spring: Lessons from the Bear Market and When Winter Will End – The Pros and Cons of Web2 Joining Web3

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