Peeling Back the Layers of DeFi

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Peeling Back the Layers of DeFi.png

I started using DeFi several months back after I heard about the benefits of different protocols like collateralized loans and lending.

At first, I was just using collateralized loan products a little bit here and there. I was depositng small amounts of crypto in order to take out loans against that crypto in stablecoins. From there, I could take the stablecoins and buy BTC or HIVE or even (as I did 2 months ago): stocks.

The use cases for loan products and lending are great, but there is plenty more happening in the DeFi space that most are unaware of. Being on Crypto Twitter a lot, I see a spectrum of crypto users that can be hard to wrap your mind around. This space is filled with Bitcoin maximalists, self-proclaimed crypto "savants", moon coin chasers.. you name it and crypto has it.

What many of these people have in common is a speculative view of the DeFi arena. There's a lot happening in DeFi and while the industry has been maturing over the past 18 months or so, it seems to have exploded out of nowhere.

The DeFi Explosion

On May 29th of this year, DeFi hit $1 billion USD in total value locked. TVL represents the total amount of value that is deployed in DeFi protocols - usually represented as money in the form of ETH, ERC20s and Stablecoins held in smart contracts.

Today, DeFi hit $9.42 billion USD. If you think the exponential growth is done, then you're dead wrong. In the last 24 hours, another $1 billion USD (a ~12% gain) has been added to this TVL number. DeFi is booming and we'll likely hit $10 billion in the next day or two. $20b and beyond seem to be within reach by the end of 2020.

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With all this money flooding the market, there are a lot of coins that are getting insane valuations. SUSHI is a new token protocol that is a forked version of Uniswap. The real value differentiator in Sushi versus Uniswap is that they're offering yield farming and staking rewards (in the form of earning SUSHI governance coins) whereas Uniswap does not.

This SUSHI token was listed on Binance this morning and has risen from $1 (about 3-4 days ago) to $10 as of today.

SUSHI is far from being alone in this respect. Coins all over the space are going absolutely bananas in value and there is no end in sight. It's starting to feel like 2017 all over again.

One thing that I remember about 2017 is all the profits that I personally made and the people all around crypto made. It's an incredible thing to see when you have an industry of passionate users who start to get paid for their dedication to something. While 2017 brought profits for many, it also brought devistating losses for many others.

With any emerging industry, there will be bubbles. Especially tech-based industries. Crypto is still nascent and while we're headed for another bull cycle, there is no telling where and when bull ends and the bear begins anew. I think the key is to find have a healthy mix of projects you believe in and possibly some speculative trades that you're looking for a quick profit based on the hype cycle. That's what I'm doing, at least.

The Layers of DeFi

With this idea in mind: that crypto will go through another major bull and bear cycle. People are wondering if DeFi is a ticking time bomb. You have this new industry seemingly coming out of nowhere and growing by billions of dollars per week. How sustainable can that be?

In my opinion, we're still in the early stages of this cycle.. but it is still a cycle. DeFi is a bubble and one thing that I believe about bubbles is that there is fundamental value underpinning all that happens. So while I see certain tokens like SUSHI as get-rich quick schemes, I also see the emergence of trading volume on Decentralized Exchanges (DEXes) as being an incredible win for the industry.

Fundamental value is here, if you know where to look.

While yield farming carries a bad name and often a lot of bad actors, there are still positive aspects to it. There are also positive aspects to many of the coins that are receiving major funding as their token prices explode and the teams are able to - if they are intelligent - sell some developer stake at a major premium in order to fund the next 2-5 years of development.. should we enter another bear cycle (which is inevitable).

As we've prepared for LEO's dash into the Ethereum/DeFI space with the launch of wLEO, I've been doing a lot of research into DeFi and what it's all about. There are so many layers to the onion and every time I turn over a rock, I find that there are a hundred more rocks underneath it to turn over.

Today, I was exploring different DeFi circles for basic best practices in the industry. As Liquidity Pools and Lending Protocols have gotten more popular, the need for organized dashboards to display information about your ETH account have gotten more popular as well.

This is how I found the Zapper.Fi project. All you do is head over to https://Zapper.fi and then enter your ETH address. No keys, no nothing. You can just enter in your ETH public address and start viewing information about your holdings, liquidity pools you participate in and even lending protocols that you're utilizing.

Here's the dashboard for my wHIVE ETH address:

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This is the address that I used to test something on MakerDAO and also the one that I used to deposit wHIVE and ETH into the Liquidity Pool on Uniswap. You can see the value of all the assets in this address along with a break down of where it's held, the type of asset it is (including DAI stablecoin debt) and the platforms I'm currently involved with.

4 years ago, I got heavily involved in crypto and Ethereum was one of my first stops. The fact that projects like Zapper.fi coupled with protocols like MakerDAO, Uniswap, AAVE and hundreds of others are becoming commonplace is truly amazing.

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The more that I dive into DeFi, the more impressed I become. At first, I was one of the skeptical onlookers. Now I feel that this industry has a lot more fundamental value than it is given credit. Yes, there is a boom of new tokens gaining absurd valuations. Yes, there is a boom of new money. Yes, this is a bubble... BUT there is still value to be seen.

Just as with the ICO boom of 2017, there is underlying value in the DeFi industry. With ICOs, we saw a lot of scams and a lot of absurd coin valuations. We also saw a lot of interesting and innovative projects get funded that are still around today. We saw this concept of taking a coin public become a regular activity and today, coins are launched left and right (for better or worse).

With DeFi, we're going to see the same outcome. There will be a huge bubble which will become who knows how many billions of dollars bigger than it should be. With a bubble comes funding and attention. With funding and attention come true developmental work and fundamental value. I think we'll see a continuation of this explosion in DeFi, but we'll also see some core pillars of crypto built that will be here for the years to come.


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Yield farming is very easily explained tbh: A bunch of well known protocols needed to incentivize liquidity providers and to decentralize the governance of the protocols to become more SEC proof so they started giving governance tokens to the users of the protocol... these governance farmable tokens were slowly farmed and thus created illiquid pools on uniswap that dumb people used and pumped the price many times and the hype kept going up and up on these illiquid tokens, meanwhile a lot of people are using the protocols, farming the tokens and dumping on these people... They even created an automated protocol to farm the best APYs called yearn.finance, and in the end all that yield is going to the token they deposited (USDC, USDT, DAI, ETH, LINK).

I'm thinking of using the new yearn vault that uses ETH - Maker - Dai - DAI yield farming, very risky but with 80% APY atm.

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Hi @khaleelkazi
De-Fi is hot right now and
https://Zapper.fi is one of the best places/tools for de-fi
Though the thing that hurts the de-fi users the most is the high gas fee
This keeps de-fi off limits for a lot of small investors who do not have $500- $1000 to play with we surely need a solution to this issue and soon.
H

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