The concept of DeFi (decentralized finance) continues to expand in all directions. DeFi is a term used to describe the decentralization of financial services. In the early days of DeFi, developers focused on providing services found at your centralized financial institutions. However, the market has taken on a life of its own as there are new and exciting features that are now unique to the DeFi sector.
What Led to DeFi
Some important developments led the way for today’s DeFi revolution. Each step of the journey has proven to be a learning experience for the entire community. Today’s DeFi is far more inclusive than the early protocol. This inclusivity has driven adoption to new levels.
The Term DeFi
The term DeFi has been in use since 2018. It was at this time that the term was first used during a Telegram chat between a group of entrepreneurs and Ethereum developers. This chat included some well-known crypto developers such as Inje Yeo of Set Protocol, Blake Henderson of 0x, and Brendan Forster of Dharma.
Ethereum Births DeFi
Ethereum can be credited as the first DeFi network to take flight. The protocol has been and remains a pioneering force in the market even though it’s technologically inferior to today’s fourth-generation protocols. Ethereum operates as the largest and most successful DeFi protocol globally.
The introduction of the ERC-20 protocol was a critical component of the DeFi sector’s evolution. ERC-20 was the first token standard to become publicly available. It enables businesses to easily create and monitor secure digital assets which resulted in the 2017 ICO (Initial Coin Offering) boom. Businesses were eager to tap into this new financial tool to access public funding more affordably.
Growing Pains
The evolution of the DeFi sector has been a prime example of how technologies morph over time. The original DeFi protocols leveraged high-yield staking pools to generate low-risk returns. The first DeFi protocols suffered from inflationary concerns due to their structure. It was normal for these pools to issue rewards in the utility token. This unpredictable token issuance policy led to a flood of these tokens entering the market.
The extra supply led to lower demand. In turn, prices started to drop for these early DeFi pioneers. Later protocols helped to alleviate these issues through multiple strategies including the creation of Liquidity Pool tokens.
Projects Falter
There have been some concepts that were too far ahead of their time, not well organized, or just not thought out. This is a normal part of technical development and it’s also why people need to be extra cautious when entering the DeFi sector. For example, peer-to-peer lending services have been faltering lately in the market.
This month has seen multiple p2p lending protocols falter due to many reasons. Celsius halted withdrawals and filed for bankruptcy this month. The report showed the network had a $1 billion deficit in its payables owed.
Celsius rose to stardom due to its record high yields. The network promised traders 20% APY on their holdings, which is higher than competitors. Analysts have stated that these funds were mostly composed of new users’ funds rather than yield generated from the system.
What Makes a Smart DeFi Strategy?
When you think about all the users who have little chance and no recourse in getting their funds back, it’s saddening. It’s also eye-opening in terms of the need to implement practical DeFi protocols to ensure you avoid joining troubled protocols. For example, the fact that Celsius paid out 20%, rather than 10% which is sustainable, should have been a red flag rather than a reason to join the protocol.
As a new DeFi user, you must stick to reputable protocols that have reasonable long-term goals. A protocol that pays out 10% for years is better than one that pays out 20% for a few months and then goes under. It’s the age-old saying, “If it sounds too good to be true, it probably is“
You can improve your DeFi returns and experience by learning. Knowledge will help you to spot when platforms offer something that is either technically impossible, or financially unreasonable. These red flags will help you to choose viable protocols that can stand the test of time.
DeFi – The Early Days
Interestingly, the DeFi revolution outdated the term “DeFi” by a full year. In 2017, Maker became a DeFi pioneer in the market. It was the first DeFi project to launch on the Ethereum network. It was also the first DeFi DAO (Decentralized Autonomous Organization) in the world. DAOs are protocols that replace the core components of the corporation with community-governed systems.
Maker (MKR)
Notably, Maker is a peer-to-peer lending platform that enables anyone to earn rewards by lending out their digital assets. The protocol keeps in line with the open nature of the DeFi market as there are never any credit checks needed to access funding. Users simply need to meet the collateral requirements to qualify for instant funding in the form of stablecoins.
EtherDelta
Another early venture into the DeFi concept was EtherDelta. This network was the first DEX (decentralized exchange) to launch on the Ethereum network. DEXs differ from CEXs in many ways. They operate as pure code that connects traders rather than a custodial entity. This approach is safer and keeps your digital assets better protected versus leaving them on a large network.
EtherDelta gave the world its first glimpse into the advantages of a DEX. The protocol enabled anyone to trade ERC-20 tokens privately and securely. There were no logins or registration required to use the exchange which made it hugely popular in the market.
Interestingly, EtherDelta used an order book for price discovery and to facilitate trading. Today, order books are not common in the DEX community as they have been replaced with AMMs (automated market makers). These systems eliminate the need for an order book and instead, traders interact directly with smart contracts.
EtherDelta’s reign as the top DEX came to a sudden end when the network was hacked for around $800,000 in tokens at the end of 2017. The bad news continued for the platform when in 2018, the DEXs founder was charged by the SEC for the illegal sale of securities.
Uniswap
One of the biggest developments in the evolution of DeFi was no doubt the introduction of the Uniswap DEX in November 2018. This system was unlike any other exchange before it. Instead of relying on an order book to link traders and determine price, Uniswap integrates liquidity pools. These large smart contracts enable projects to obtain crowdfunding in an open and permissionless manner,
Additionally, Uniswap was the first DEX to introduce automated market makers. These systems are better suited for the decentralized approach. AMMs provide some major advantages to the DeFi space. For one, they reduce slippage for traders. Slippage is the difference in price paid from when you select to trade and when the trade executes. Notably, Uniswap was funded by a grant from the Ethereum Foundation
Compound
Compound again changed the DeFi landscape when it introduced liquidity mining in May 2020. Liquidity mining leverages large pools. Users receive rewards for providing liquidity to these smart contracts. They also receive LP tokens. The LP tokens concept added another incentive to participate in these pools. LP tokens’ value rises by the total liquidity of the pool. As such, DeFi users could now secure even more rewards.
Compound Governance
The compound also shook things up with the introduction of its unique governance system. The developers limited the governance mechanism to only those who held COMP tokens directly. The more COMP tokens a user held and the more weight their vote had. Notably, this system is still very popular and in use by a large majority of DeFi protocols in the market today, albeit with some minor modifications.
The Future of DeFi is Today
The DeFi features of today build on these earlier concepts and provide even more earning opportunities to users. For example, the METANOMICs DeFi ecosystem integrates a variety of popular DeFi systems into one all-inclusive network. For example, users can stake their META1 tokens to secure passive rewards without the risk of losing their digital assets.
The network also introduces some familiar features such as savings accounts. The network’s high-yield savings account pays out more than 20x your local bank account. Users secure 10% APY versus the national average for fiat savings accounts at just 0.03%. These added rewards are the direct result of the removal of third parties and centralized entities from the equation.
DeFi Expands
META1 expands the DeFi concept to the next level with the introduction of a crypto VISA Debit card. This card enables users to spend their cryptocurrency just like fiat at any retailer that accepts VISA. In the past, crypto users were limited in their spending locations. Most vendors are still behind the curve in terms of blockchain adoption.
However, the VISA crypto card pays vendors in fiat which allows you to spend your crypto anywhere that accepts VISA. To accomplish this task, the system sells the corresponding amount of crypto and converts it into fiat at the time of purchase. The process takes seconds and the vendor is unaware that anything is happening in the background. They receive fiat and you take home your products or services.
METANOMICs DeFi Opens the Door for Large Scale Adoption
The METANOMICs ecosystem was built with the same goal as Bitcoin in mind, to provide the world with more financial freedom. The platform expands on Nakamoto’s dream by introducing the full power of DeFi technologies. Users can leverage the token’s stability as a foundation to generate long-term wealth.
META 1 Coin
META 1 is the first multi asset, gold-backed safehaven token to gain popularity in the market. This token is light years ahead of traditional stablecoins. It combines the best aspects of gold, stability, and appreciation, with the dynamic capabilities of blockchain assets like Bitcoin. You can use META 1 to store value or transfer internationally, in a permissionless manner. In this way, META 1 services the market METANOMICs ecosystem.
OnRamper
META 1 provides developers with an easy and efficient way to enter the market. The Onramper portal is a flexible alternative to using expensive and insecure CEXs (centralized exchanges). The helpful dashboard accepts +50 types of fiat currency and is open to members of 150 countries globally.
This option streamlines the onboarding of new users significantly. You can effortlessly enter the DeFi sector and secure profits using this option. Convert your inflationary fiat currency to self-appreciating META1 stablecoins and beat out inflationary risks and unnecessary losses.
META Exchange
The developers behind the METANOMICs concept went to great lengths to ensure the network was all-inclusive. The META Exchange leverages a powerful AMM protocol to ensure you get the best crypto rates. This isn’t your normal DEX. It’s packed with convenient features not found in the competition, including in-wallet staking options.
Secure Returns Using META 1 Coins
META 1 token holders can secure passive income using the token staking protocols or the META VAULT options. The META VAULT provides low-risk returns of up to 10% APY for account holders. The VAULT beats out inflation and provides you with a secure way to protect your META 1 Coins. Best of all, you can spend your META 1 like fiat currency using the network’s VISA debit card.
The DeFi Race is just Starting to Heat Up
After reviewing a brief history of the evolution of the DeFi market, it’s obvious that this sector has unlimited potential. Every day DeFi developers introduce new and more profitable services and features to the market.
Platforms such as META1 drive innovation and demonstrate just how effective DeFi is at wealth generation. For these reasons and many more, you can expect to see a continued migration to the DeFi sector in the coming months.