The radical opportunity offered by decentralized financing has drawn a lot of attention from investors and speculators alike. The total value set in the DeFi logs increased over 2,500% in 2020, from around $ 700 million in January 2020 to over $ 20 billion in December 2020. TVL is a more useful metric than market cap when it comes to DeFi, as it accurately represents the equity that investors are willing to commit to these protocols. And their engagement didn’t end in 2020; This year alone, DeFi’s TVL more than doubled, reaching $ 40 billion in February.
Connected: Was 2020 a “DeFi year” and what is expected of the industry in 2021? Experts answer
While DeFi’s growth last year was largely due to retail investments, 2021 will be the year institutes begin to get involved in the action. As returns on fixed income assets continue to plummet to historically low levels and unprecedented stimulus packages drive inflation expectations higher, a massive amount of money now seeks higher returns.
Forward-looking asset managers turn to DeFi. Circle – the issuer of the popular USD Coin (USDC) stablecoin – will open the first high-yield digital dollar account aimed at institutions. By lending to capital-hungry crypto markets instead of over-saturated traditional markets, the account can offer an annual percentage return of up to 10.75%. While it will only serve businesses initially, there are many options that cater to individual investors.
How to bring institutional investors into DeFi
During DeFi’s explosive growth in 2020, dozens of separate attacks have drained investor funds, with half of all crypto attacks in crypto being based on DeFi protocols. Many of these exploits used tactics as new and creative as the protocols themselves. Others were iterations of previous exploits that are frustratingly easy to prevent. While loss of funds is unfortunate, DeFi’s security has improved significantly over the past few years.
To be listed on a major exchange, a project must have passed the exam, as it is simply too risky for exchanges to compromise on the security of their clients’ money. But sensible security doesn’t end there.
Connected: The code is key: solutions to overcome DeFi security breaches
Worryingly, there were attacks in 2020 that stole money from logs that had passed a security clearance. While the review focuses on a snapshot of the code before it is deployed, the process can no longer consider the interactions of a contract after it is released. DeFi’s dynamic rate of change means that new tools and programs can bring new risks.
Connected: As trust in audits wanes, the DeFi community is considering security alternatives
The possible solution
Automated security tools can continuously monitor smart contracts for a variety of known vulnerabilities, even after they have been deployed on a public blockchain. Users can also protect individual transactions by requiring that the contract they are interacting with meet a certain security threshold before the transaction can be confirmed and funds committed.
It is important to be protected while your contract is running, even if everything seems to be going smoothly.
In addition to real-time security tools, there are some options for decentralized insurance alternatives on the market today. There are solutions that can provide protection for user funds that are locked in many DeFi protocols. This gives DeFi users the peace of mind that their capital will be safe in the face of unforeseen events.
We envision a world of decentralized finance where protecting your assets is as easy as ticking a box before a transaction, where on-chain technology protects transactions before they happen, and where security is a fundamental pillar each platform represents.
Combined with its unparalleled returns, a reputation for this kind of comprehensive security will help DeFi climb from its current stake of around 8% of the cryptocurrency’s total market cap to levels that rival the legacy financial system.
This article does not contain any investment recommendations or recommendations. Every step of investing and trading involves risk, and readers should do their own research in making their decision.
The views, thoughts, and opinions expressed here are the sole rights of the author and do not necessarily reflect or represent the views and opinions of Cointelegraph.
Daryl Hok is the Chief Operating Officer of CertiK. Previously, he led corporate development at FiscalNote, a global GovTech machine learning unicorn. He received a dual B.A. in economics and psychology from Yale University with a focus on behavioral economics.