2020 has been termed the year of Decentralized Finance (DeFi). For 2020 Q3, the DeFi space recorded a massive 1000% increase in transaction volume. While there was a short downslide in October, the DeFi space is once again gaining traction.
Danial Daychopan, CEO of Plutus, has published his thoughts on the current DeFi boom, all in a bid to make sense of the increase in DeFi transactions. According to him, while the DeFi boom is an impressive feat, it could also mean trouble.
Are We Good Students of History?
Looking at the current DeFi boom, it is quite reminiscent of past events in the blockchain and crypto space. According to Daychopan, Bitcoin remains the first-ever illustration of Decentralized Finance. However, the first working model of the DeFi space was Ethereum and Counterpart way back in 2014/2015. Both platforms can be accurately referred to as completely decentralized and also a smart contract platform. DeFi protocols today seem to be making the same promises as both platforms at their inception. However, unlike DeFi protocols today, Counterpart was completely self-funded.
Many schools of thought have termed DeFi protocols as the next big thing, but can they break into the mainstream? It is important to note that despite its 1000% transaction volume boom in 2020 Q3, the entire DEX sphere made up only about 1.24% of total spot market trading.
DeFi Space Still in Its Infancy
Speaking on this, Daychopan points out that all new technologies start the same – clumsy, slow, and expensive. The DeFi space, according to him, isn’t any different. Expecting the DeFi space to achieve mainstream adoption is, for now, still a long call. He added that time is needed to achieve major use cases for which DeFi protocols are intended.
Following analyses from experienced blockchain developers on important DeFi areas like token distribution, cross-chain payments, etc., it is quite evident that including DeFi ideas into already existing businesses is still far-fetched. According to Daychopan, this is majorly due to the “infancy of the technology and its security risks when scaling to a mass-market.”
These shortcomings have left the DeFi space open to hacks and all forms of scams, like the 2016 $150 million DAO hack. The most recent DeFi hack includes that of Harvest Farm and the BZX DeFi protocol.
To overcome this, this fast-rising sphere has to undergo step-by-step development. Daychopan, furthermore, pointed out that, in its current state, it can only safely function as a tool for transaction verification.
Interestingly, due to the myriad of research carried out, Plutus.it has launched the world’s first-ever one-way exchange. The platform enables easy crypto purchases with fiat without the need for third-party platforms. Despite this notable invention, the platform is still a strong advocate of KISS (Keep It Simple Stupid).
Complex DeFi Use Cases is Disaster Waiting to Happen
According to Daychopan, aiming DeFi use case beyond transaction verification is a “recipe for disaster.”
He furthermore highlighted several reasons to back up these claims. They include:
- Difficulty to scale – This will become more evident once more active users join the protocol.
- Regulatory constraints – As the protocol gains traction, there are sure to be several regulatory constraints.
- Scams and hacks – Due to the infancy of the DeFi space, DeFi protocols are still basically at the mercy of hackers and scammers. This will, however, change as more innovative breakthroughs in the area of security is achieved.
While the DeFi space is truly an innovative sphere, protocols must remain realistic. Putting facts into consideration before making a decision is also an important step for investors. The DeFi space, according to Daychopan, is only driven by FOMO. It is important for investors to remain level-headed.
What To Look Out for in Defi Protocols
Before investing your assets in the DeFi space, it is important to ask the following questions.
- Does this project’s proposed solution solve a need?
- Is the project secure? Can it resist attacks and is it scalable?
- Who are its major users? And lastly,
- Why do they need this protocol?
In answering this question, you will find out that most DeFi protocols are still a far cry from achieving mainstream usage.
Interestingly, Plutus recently launched a 15% discount on all iPhone 12 purchases.
Find out more about the DeFi Boom of 2020 and its implication on the entire crypto space on the Altcoin Buzz YouTube channel.