Young Reporter- Crypto: Deep Dive into DeFi Yusuph Choudhury Parmiters
What is “DeFi”?
The term “DeFi” – which stands for “decentralised finance” gained popularity in late 2018 as a catchall for an eclectic collection of blockchain initiatives aimed at eliminating human intervention from the financial services industry but it largely remains a mysterious, and a more hyped, area of the cryptocurrency world, despite its proponents’ claims that it will lead to a speedier, more inclusive, and transparent financial system.
The idea is that automated mechanisms are used to facilitate trades and loans between participants rather than a central intermediary holding cash. The programmes run on blockchains, which are unchangeable public ledgers that keep track of cryptocurrency transactions.
The figures According to data compiled by MarketsandMarkets — between 2018 and 2020, the blockchain market almost tripled from $1.2 billion to $3 billion, this figure has near-enough doubled year-over- year, and with outsize yields and a wave of new initiatives helping to propel growth it is expected to reach $67.4 billion in 2026.
Tangible use cases Stablecoins, cryptocurrencies that are pegged to fiat currencies e.g. US dollar, have supported a peer-to-peer lending marketplace, which has attracted the majority of popular applications. To create a “liquidity pool” from which borrowers can draw, owners contribute their assets. Interest rates are automatically established using “protocols” or algorithms based on supply and demand.
Lenders can get consistent, variable interest payments as a result of the ongoing transactions. In the case of a default, borrowers supply the system with more security by pledging assets.
What do the critics say?
2023 has been a year in which US regulators have constantly dealt hammer blows on traditional cryptocurrency following a slew of prominent failures brought on by the market crisis of last year.
But fresh battle lines have been drawn against DeFi over the past few months.
The Crypto-Asset National Security Enhancement and Enforcement Bill was introduced by senators this year. It demands DeFi providers to adhere to the same rules as “centralised” businesses.
Defeating the very nature and spirit of said DeFi platforms. Those who support cryptocurrency have been understandably incensed by the bill.
However it is not all doom and gloom Andrew Griffith, an MP and economic secretary to the Treasury, has flatly rejected proposals for the UK government to regulate cryptocurrencies. As well as this as a partner in his brother’s venture capital firm 9Yards Capital, which funds multiple DeFi start-ups, former UK chancellor George Osborne has publicly expressed support for the DeFi movement.
In short, DeFi is still incipient, is freewheeling, and is generally unregulated. However the total value locked in DeFi has increased by 5x since July 2020 and with only £52 billion of value locked into it (Exploding topics) – it is an industry seldom believed to vanish anytime soon.