Decentralized Finance or DeFi was the hottest crypto trend in 2020. Many speculated that DeFi would meet the same fate as the 2017 ICO bubble. However, the DeFi bubble denied to pop and seems to be getting even bigger and stronger in 2021. Currently, the total value locked in DeFi protocol amounts to be over $40 billion. Interestingly, the value has almost tripled since the beginning of 2021. As a Defi development company, Antier Solutions believes that DeFi sector is primed for explosion.
What started as an experiment seems to have turned into a global movement. DeFi has now penetrated deeper into building an open financial system where anyone with an internet connection can have access to savings, loans, insurance, trading, and more. However, in 2021, we see that some new trends are emerging in the DeFi space. Here is what seems to be taking the center stage now.
New DeFi Trends in 2021
2020 was the year of DeFi. Interestingly, more than half of the 2020 DeFi market cap fell under the category of DeFi lending. The technology that decentralized the lending sector became one of the hottest trends in 2020. Throughout the year, we witnessed innovative DeFi crypto lending platform development initiatives. These platforms took the financial space by storm as they facilitated collateral loans and also offered higher interest rates than the traditional lending setup. Along with that, it enabled P2P lending at a cost much lower than the traditional financial system. Interestingly, DeFi lending continues to grow in 2021. According to DeFi Pulse data, the most dominating DeFi protocol in 2021 is still a lending protocol, Maker.
Let us now take a look at the other very popular DeFi trends in 2021.
Non-Fungible Tokens (NFTs) in DeFi
2021 seems to be a year of NFTs. The year to date has witnessed soaring engagement and interest in NFTs. While it is yet to hit the mainstream, it holds a very strong value proposition for the DeFi sector. In September 2020, the NFT sales amounted to be $1 million, and within the next 1 month, the sales went up to $2 million. According to the NFT experts, the emergence of DeFi has helped in increasing the liquidity of NFTs. NFTs are no longer inaccessible or expensive.
A very interesting proposition of NFTs is to act as collateral in the DeFi lending market. The NFT owners can put it as collateral and borrow money from a DeFi lending protocol. Apart from the collateral, NFTs find use in the development of complex financial products like options, insurance, and bonds.
Deflationary Governance Tokens
The tokenomics models of most of the crypto projects out there are broken. This is because most of these are inflationary in nature. As a result, in order to reward the liquidity providers, the protocol keeps on minting new tokens. This effectively creates an imbalance in the demand and the supply of the tokens.
Now the DeFi protocols are experimenting with the opening up of new possibilities with the highly deflationary token model. Being deflationary in nature, these DeFi protocols burn a certain percentage of tokens after every transaction. This helps balance the supply with the volume to ensure the token prices do not soar without any actual demand.
Insurance and Derivatives markets
While the DeFi statistics like total value locked (TVL) seem pretty impressive, the sector is still facing some growing pains. For example, the emergence of DeFi has put a lot of pressure on the Ethereum network as 90% of the DeFi protocols are built on it. Due to this, the Ethereum network usage gas fees have soared.
In spite of all this, the DeFi sector seems to be exploring more traditional finance-focused products insurance and derivatives. Much like insurance in the traditional financial world, DeFi insurance ensures the user’s assets are protected in case of an event. The DeFi platforms receive a specific amount of premium to provide the cover.
Unlike traditional insurance, the DeFi insurance policy premiums and payouts are governed by the community. It is the underwriters who provide capital to the DeFi protocol liquidity pool. To govern the protocol, the underwriters take a share of the premiums.
Another area that is also getting a lot of attention in the space is the DeFi derivatives. The reason behind the popularity is that DeFi protocols bring flexibility to derivatives by exposing them to multiple assets and platforms. The protocols can use smart contracts to issue tokenized derivative contracts. These are then executed in an automatic and permissionless manner. Such products are expected to become very popular as they protect the product owners from future price fluctuations. Along with that, they can gain more by speculating the price of the underlying asset.
DeFi seems to have waged a war against traditional finance. Very soon we might see mainstream adoption of DeFi.
If you are planning to build a DeFi platform, Antier Solutions can help. As a reliable DeFi software development company, we provide a host of DeFi development offerings — from decentralized exchanges, wallets, lending platforms to decentralized banking, derivatives platforms, staking platforms, and more.
Schedule a free demo of our white label DeFi products or connect with our subject matter experts to share your needs for a custom DeFi platform built from the ground up.