DeFi is Heating Up
As temperatures rise across Europe so has activity across DeFi (Decentralized Finance). As I talked about in this newsletter in January, we had been expecting DeFi to make some big advancements in 2020. But what exactly is this new innovation and why has it been booming of late?
DeFi, more broadly, is the concept of a financial ecosystem living digitally on a decentralized infrastructure. It has largely been developed on the Ethereum public network and has been mostly used to drive participating parties to lend and borrow through DeFi protocols.
Lately, usage and activity has been driven by holders of stablecoins and cryptocurrencies who have been leveraging DeFi protocols without the need for any intermediary. Examples of DeFi applications include yield farming, a novel innovation that allows a user to lend their crypto or stablecoins out at an interest, typically over 4%, to those that want to borrow. In a time where interest rates are declining globally, interest has surged recently.
Yet, this innovation is still in its beginnings. Along with cryptocurrencies and stablecoins, security tokens will also be used as collateral for those that want to borrow. The necessary technical solutions are available for issuers to compliantly dematerialize their assets through onchain identities and permissioned tokens. However, there is still a missing piece. In order for DeFi and Onchain Finance to bridge, there needs to be a good level of data-rich security tokens with clear valuations and transparent pricing. We will make some announcements in this regard in the months to come.
If you’re interested in finding out more about this then please do not hesitate to contact us. As always, please see the below for a roundup of the most notable news in the last month.