One of the most important phenomena in the world of cryptocurrencies in 2020, was Decentralized Finance or DeFi. They were the protagonists of the new technology aspects practically throughout the year and their growth can be considered as unexpected.
Although DeFi was born a few years ago (December 2017), its true potential was shown in 2020. The growth of the locked value (TVL) injected into these applications this year has been of such magnitude that since July 2, when it did not reach $ 2 billion dollars, on September 11 it was already close to $ 11 billion.
Currently, at the end of 2020, the TVL of DeFi reaches $ 13.4 billion. For many analysts, the recovery of Bitcoin took away the prominence of 2020 from decentralized finance and now they will go into decline. For others, the system is just beginning and DeFi will become an alternative to the financial system.
Will DeFi in 2021 have the same momentum as in 2020?
Taking 2020 as a reference to predict the behavior of DeFi in 2021 is not entirely accurate. It is a complicated analysis in which the experts in the area of Blockchain and Finance hold radically different opinions. All this suggests that the DeFi is a riddle that remains under a cloak of mystery.
Despite all the differences in the approach of the experts, something that is a consensus is that this new modality is just in its infancy. This means that its success depends on usability and this, in turn, on the number of people who have knowledge of the system.
The rally of Bitcoin, in the last stage of the year 2020, erased the interest of users in DeFi, who now settle for trading in a more traditional way with Bitcoin on the already known centralized exchanges.
This last situation has led to a relative stagnation of decentralized finance. On the other hand, it has led many to equate the 2020 DeFi with the ICO boom of 2017.
The Total Blocked Value (TVL) in DeFi, reached unexpected figures in 2020. Some analysts consider that a boom of such dimensions will not be repeated in 2021. Source: Defipulse
Transformation of financial services
For a series of experts, interviewed by the CoinTelegraph portal, the DeFi in 2020 reached the first quarter of its goal. In the medium term, explains Brian Brooks, regulator of the US Treasury, the DeFi will be one of the great forces that will redefine financial services.
“By fulfilling the three main functions of banking, loans, payments, and deposit taking, decentralized finance has great potential. It will transform the way we consume financial services, “he explains.
The innovation and evolution aspect of the crypto universe is one of the essential parts that the DeFi provided. This is the opinion of Dan Simerman from the IOTA project.
“I agree that 2020 was the year of DeFi. Mainly because these projects dominated in terms of innovation and development. They showed the world of cryptocurrencies that innovation is still possible, “he said.
On the other hand, he dismisses the comparison of 2020 in the sector, with the ICO fever of 2017. He considers that, after the “ICO madness”, it seemed difficult for another innovation project to establish itself in the market. However, the high level of development and opportunities created by the DeFi, made it possible for them to become “a phenomenon that is just beginning.”
The risks within decentralized finance
Another aspect to take into account for 2021, and which was present at all times in 2020 among the DeFi, was security. The risk of placing capital in many of these projects that are not safe, is one of the great concerns expressed by Emin Gün Sirer, CEO of AvaLabs.
Another problem expressed by the experts consulted was that of scalability within the network. High commissions have been a headache for the ecosystem. Thus, during the year, they reached their historical record on several occasions.
Whatever opinion one has of the DeFi, what cannot be denied is that they already have their position. From being ignored by practically all the users of cryptocurrencies, they now have a growing interest among major investors in the sector.
Although it is not feasible for the 2020 boom to repeat itself in 2021, the stagnation and rebound stages are likely to alternate.
Data to take into consideration
The DeFi, although they were created in 2017, their “rise to fame” was in 2020 with the boom of the sector. During the year, with a timid Bitcoin, the DeFi rose from less than $ 2 billion in July to almost $ 13.5 thousand this December. Although many analysts consider them a bubble full of risks, others say they are just beginning a path that will lead them to redefine finances. It is likely that the behavior of DeFi in 2021, if something extraordinary does not happen, will continue as at the end of this 2020.