Reasons for the DeFi Explosion: When Does It Stop?
Decentralized finance has evolved from a minor industry to a global market over the past year and continues to gain momentum.
At the moment, the volume of DeFi is more than $38 billion, and this figure is showing steady growth.
This is not surprising, because more and more people are paying attention to this market due to its advantages and prospects. Let’s look at some of the fundamental reasons for the DeFi surge and answer the question of whether the uptrend will be long term.
Reason #1. Independence
A key feature of decentralized finance is complete independence from regulators and states. Previously, to complete a transaction or apply for a loan, you had to spend time and money on going through bureaucratic procedures. Now you can simply use the services of DeFi tools.
With the industry growing, developers are doing an excellent job of meeting user demand. On an ongoing basis, they improve existing services and present new approaches to the perception of the financial system.
Reason #2. Interest from major investors
Blockchain technology as a whole is already perceived by serious market players as a necessity. That’s why we see large banks, funds, and global businesses entering the market. Accordingly, interest in DeFi has also appeared from the investment funds side. So, it guarantees long-term positive dynamics in this direction.
For example, Singapore-based investment company Spartan Group announced the creation of a $50 million venture capital fund to support projects in the decentralized finance field.
Moreover, many experts are confident that by the end of 2021, some large financial companies will launch their decentralized finance apps.
Reason #3. Pandemic
As strange as it may sound, COVID-19 contributed to the growth of the DeFi market.
The fact is that the global economy has been tested, and many financial giants have crashed.
History shows that during world crises, people need to fix their funds and even find opportunities to increase them. Decentralized finance has become a harbor for many investors who have emerged from the pandemic with excellent growth performance.
Reason #4. Compliance with trends
It’s no secret that DeFi is one of the most discussed investment directions right now. Many retail investors want to be in the technological progress trend, and they are in a hurry to “test the strength” of this market.
Roughly the same situation occurred during the first crypto boom in 2017, but the consequences were not as positive as we would like. However, the industry has matured, become more stable, and now the popularity factor has every chance of becoming confident support for further growth.
Reason #5. Development potential
This reason follows from the previous one because a suitable background for growth has already been prepared. At the moment, there is a clear trend towards creating strong, independent, and transparent systems. DeFi meets these requirements.
Based on decentralized finance, it’s possible to build global ecosystems that will be beneficial for all participants. Based on the statistics of new decent DeFi projects emergence, this market will only grow steadily, proving that a decentralized future is not a dream but a goal.
Does DeFi have the emergency brake?
Looking at this pace of development, some skeptics are expecting a sharp drop in DeFi. At the same time, the giants of the blockchain industry, who predict stable growth, don’t agree with them.
2021 could be a great opportunity for DeFi startups to attract millions of dollars in investments by solving the problems of standard finance.
According to the forecast of a large investment company Blockchain Capital, the volume of outstanding loans under the DeFi protocols will increase 10 times, exceeding $30 billion, and ЗЗ% of the trading volume on cryptocurrency exchanges will go exactly to the decentralized exchanges (DEX).
There is only one risk — the possible introduction of restrictions by regulators. However, so far, this trend hasn’t been observed.