Decentralized finance (DeFi) took the crypto world by storm in 2020. And although the hype had cooled a bit by the end of last year, we are still seeing signs of its growing popularity well into 2021.
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DeFi is about using blockchain solutions to deliver traditional financial services. It does this through smart contracts, with no government or corporate control and no need for intermediaries, which greatly reduces the time it takes to complete operations.
This area has now received a lot of interest as the option of having blockchain-based alternatives to traditional banks or brokers gains in value and popularity. The idea is that with an appropriate governance approach, DeFi can make payments more transparent and democratize everyone’s access to global finance.
The value of DeFi continues to skyrocket – current statistics show that in February 2021 the total value in DeFi projects was locked eclipsed $ 40 billion. For comparison: at the beginning of 2019 it was around 40 million US dollars. The difference speaks for itself.
However, it is not that the DeFi field poses no risks. High volatility in this market makes volatile losses a fairly common occurrence – when the price of a DeFi token goes down from its original value. Many projects went through this past year.
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Another danger comes from hackers, who have increasingly focused on this area in 2020. And in 2021 these would be the most recent examples nostalgia in February (lost $ 11 million) and DODO in March (lost $ 3.8 million).
Fraud is also an important thing to watch out for. DeFi’s openness has resulted in a wide variety of pump-and-dump programs, fake giveaways, exit scams, etc. According to the blockchain analysis company CipherTrace, exit frauds in particular have formed 99% of crypto scam programs In the second half of 2020, criminals got away with around $ 1.9 billion in stolen funds.
But despite everything, people continue to believe in DeFi and the growth continues. We have found that high quality customers, companies and institutions are particularly interested in this sector because they want to invest large sums of money. The presence of such demand is built-in DeFi support that gives clients access to more financial instruments of their choice.
In conclusion, it can only be said that DeFi could offer investors a very rewarding experience, but it can only happen if they approach decision-making with caution.
Konstantin Anissimov is CEO of CEX.IO