Decentralized finance (DeFi) has taken the world by storm over the past year or so. Despite regulatory pressure or clampdowns on crypto mining operations, DeFi continues to thrive.
Chartered Financial Analyst and Arca CIO, Jeff Dorman, has laid out his reasoning as to why the current narrative towards crypto assets is not going away.
In a lengthy tweet on May 24, the former COO of Harvest Exchange stated that this bull rally actually started in late 2020. The cause being extremely low and often negative interest rates, alongside a very weak dollar in the wake of all the printing for stimulus measures.
Nothing has changed in Q2, 2021 which is still very bullish for high-risk assets. Additionally, institutional funds are still flowing into crypto assets. They purchase for the long run and are not looking to make a quick buck like the retail traders, who have mostly sold in a FUD-fuelled panic by now.
“Like a religion, no amount of science will change people’s minds here, and this becomes more political theatre than substance.”
During 2008, the smarted buyers who had cash just kept buying even though every purchase was terrible. I personally sold Carl Icahn MGM bonds at 80, 70, 60, 50, 40, 30 and 20 cents on the dollar — in the same week.
It takes conviction to buy that way, but it's usually right
— Jeff Dorman, CFA (@jdorman81) May 23, 2021
He also stated that DeFi will be a major beneficiary of any regulatory clampdown on exchanges and crypto mining, and here’s why.
The Power of DeFi
DeFi offers so much more than decentralized banking. It provides a way for those without access to traditional financial services to earn yield not possible with any fiat currencies. High street banks are largely punishing savers now by offer next to zero in interest while using the funds themselves elsewhere.
Without the convenience factor of a debit card or credit card, there would be few reasons to leave your money in a bank where it is essentially devaluing over time.
DeFi provides a way to earn an income on crypto assets and stablecoins that far exceeds anything a bank can provide. It has the added bonus of not requiring the reams of intrusive paperwork and personal information to open accounts.
Staking Over Mining
Mining is a very power-hungry operation that largely only benefits centralized pools of miners (over half of which are in China). It has come under scrutiny lately due to excessive power consumption concerns – which led to comments that catalyzed the market crash.
Staking on the other hand benefits anyone holding the asset. This is why DeFi staking protocols and coins will grow in popularity over the coming years; regardless of any mining crackdowns in China or centralized exchange regulation in the U.S.
Granted, there are a few risks with DeFi protocols such as whether they have been audited or not. Despite that, in general, the larger and more established protocols offering more realistic returns are usually a safer bet.
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