This crypto winter needs no introduction. Many within crypto are completely preoccupied with thoughts of Fried Sam Bankman, the once 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 really judge a success story, and how this can be prevented from happening again.
The impact of recent events on the perception of cryptocurrencies has been dire, made worse by the fact that this low point follows a high period, in which fledgling retail investors were empowered to join the burgeoning field of cryptocurrencies. Now, skepticism is hitting even the most reputable centralized crypto projects. Companies that have never been doubted before must demonstrate ‘proof of reserves’ and radically increase its transparency to survive.
The crypto finance space is currently a long way from earning the trust of the public. While good ideas and intentions exist, there is little guarantee that they will not be corrupted and exploited.
With that in mind, the praise that DeFi (decentralized finance) is receiving from some sectors is to be expected. Remove the centralized component of crypto finance and instead provide trust through decentralized Protocols and codes, community voting systems, and built-in transparency for decision making and assets under management have an understandable appeal.
While the centralized crypto world talks about ‘auditing’ as if the concept is new, DeFi has been humbly putting those ideals into practice for nearly a decade.
Far from the hype, celebrity endorsement, and hero worship of last year, DeFi has been quietly building a better financial world, and it will continue to build through what comes next.
DeFi’s Continued Appeal
Despite having our own bulls and bears, for example the DeFi summer of 2020 and the apparent DeFi winter of 2022, DeFi’s tangible capabilities have continued to grow. Major financial institutions and large companies, such as tesla, monetalisY Huntingdon Valley Bank, they have embraced DeFi for solving real-world problems. Until the ends of 2022, ManufacturerDAOThe decentralized community of quietly managed a portfolio of over $7 billion in AUM (assets under management), increasing and decreasing this number in sustainable and sensible responses to market events.
Removing centralized intermediaries from the financial process is something that we at DeFi knew would be the most important factor to consider in the long term. Fundamentally, the value of cryptocurrencies derives from the immutability of the blockchain as a database. Decentralization, transparency, and community action are inherent parts of this world.
Even regulation, which certainly has its place in the future of finance, cannot replace the need for trustlessness enshrined in the code. Regulation alone cannot guarantee a lack of corruption; a fact that is also true outside of cryptocurrencies. We can see examples of corrupt corporate entities withholding secrets from regulators as proof of this: Enron Y Theranos come to mind immediately. It is also worth remembering that Enron, like the leadership of FTXhe campaigned for more regulation in his field.
While regulation provides a means to hold the guilty accountable, it doesn’t always deter the bad guys. That goal requires decentralization from the start.
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 token is a mistake. The last bull cycle relied on market capitalization to judge the seemingly booming health of certain cryptocurrencies. exchanges and other centralized entities.
But, just like Googling a public figure’s net worth, this can be misleading. It is not the overall net worth or market capitalization that matters, but the liquidity of the assets.
DeFi protocols can be used to provide liquidity to the rest of the market, further demonstrating their comprehensive contribution. MakerDAO provides liquidity to lend and borrow cryptocurrency, while other DeFi protocols provide liquidity pools to allow users to lock crypto assets into smart contracts, providing liquidity for decentralized exchanges (DEX). A more liquid market is associated with less risk, which means a safer environment for users.
On a mission to build
Going into 2023, the DeFi space will build on this value to enhance service offerings. Until now, CeFi has been an easy access point for cryptocurrency newcomers thanks to its easy-to-use apps, fun incentives, brand endorsement, and reliance on centralized teams to take care of the details. DeFi tends to require more research from its users, particularly 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 features will allow us to open up the future of finance to new audiences and achieve the universal goal of financial inclusion.
Beyond this, for many projects, the path to full decentralization is incomplete. This year’s events have added new impetus for more projects in our industry to open up community voting and record on-chain transactions and decisions.
The roadmap for many decentralization projects will accelerate in 2023, and DeFi developers are already busy making these plans a reality.
This radical move toward transparency, accountability, and community action will drive the DeFi agenda forward and ultimately help us put centralized corruption in the past. Right now, the developers at the center of this movement are determined to further increase their valuable output. Rather than allowing the crypto space to adapt to the whims of bystanders and the actions of a corrupt few, following DeFi’s lead will ensure that we emerge from the bear market as winners in the long run.