Market intelligence firm IntoTheBlock says that US treasuries, stablecoins yields and real-world assets are giving decentralized finance (DeFi) a shot in the arm. In a new article, IntoTheBlock head of research Lucas Outumuro says that MakerDAO’s (MKR) new 8% yield on stablecoin Dai (DAI), which has gathered $1 billion in deposits in less than a […]
The post US Treasuries and Real World Assets Bringing Renewed Interest in DeFi, Says Analytics Firm IntoTheBlock appeared first on The Daily Hodl.
Tokenomics aimed at financing worthless models, rampant hacks, and a lack of real-world utility have played a role in the beleaguered crypto market's decline.
Decentralized finance (DeFi) led cryptocurrency’s rapid growth in early 2021, but the crypto market has since plummeted in value. Global markets have played a role, but so has recklessness among developers when it comes to both cybersecurity and (often self-serving) inflationary token models.
Too much DeFi has been based on tokens minted from nothing or tokens that finance other tokens at high interest rates, with no part of the entire activity having any real underlying economic activity to back the yields offered.
Secondly, security issues, hacks and exploits of DeFi contracts and bridges have been widespread, and most notable DeFi platforms have suffered some form of exploit.
Related: Mass adoption will be terrible for crypto
Lastly, the lack of a uniform standard for defining DeFi contracts has limited DeFi to native smart contract platforms and tools, which also limits potential for growth, universal clients and, ultimately, adoption.
Despite these failures, DeFi is likely here to stay. But it will need to see changes and improvements to have true utility.
The DeFi summer of 2021 gave rise to several projects that promised yields that were not undergirded by any real economic activity. Some of the yields were at rates as high as 200%, and many were paid for by minting more of the same arbitrarily created tokens.
This arrangement essentially created a system that required an ever-increasing number of new users to create demand. The promised yields could only be sustained as long as new users were forthcoming. Eventually, several DeFi operations offering tokens with high yields suffered catastrophic failures (Terra, Voyager, Celsius and 3AC, to list a few). The future of DeFi will likely not lie in tokens that promise yields that are not sustained by true economic activity outside of minting tokens.
Another feature of the DeFi summer was the large number of projects that suffered from external and internal hacks of their reserves or users. Examples include the Ronin network, Polygon, Blizzard, Wormhole, Meter Bridge and, most recently, Binance Smart Chain (BSC). Some of the hacks illustrated weak security practices, to put it mildly.
Some projects lost a good portion of their reserves, and it took days or weeks before anyone noticed or disclosed a breach. And there were examples of protocols that were coded to move value without checking account balances. There were also examples of protocols undermined by developers that the operators apparently hired without fully validating their identities. These unfortunate incidents could prove to be learning experiences for the community.
Related: Coinbase is fighting back as the SEC closes in on Tornado Cash
Resorting to fundamental security practices such as independent system monitoring and alerts would be beneficial, in addition to more rigorous and careful vetting and development. DeFi projects that will prove successful in the future will be those that approach security in a more fundamental and principled way while learning from the issues and events of DeFi’s early days.
One of the touted and expected benefits of blockchain technology is its potential to bring more of the unbanked and underbanked into the financial system. This represents a huge potential for the growth and upliftment of communities.
However, it has been a missed opportunity thus far. Much of DeFi has simply focused on financial products for those already in the crypto community by building those products around the borrowing, lending and shuffling of crypto tokens. DeFi’s maturation would be bolstered by addressing the aspirations of the underbanked in the real world.
Related: Throw your Bored Apes in the trash
Taking advantage of the ability to tokenize real-world items using similar standards as ERC-721 for nonfungible tokens (NFTs), “buy now, pay later” (BNPL) DeFi products are beginning to emerge. Some of these products are based on lending to finance tokenized real-world items such as smartphones as a work tool, and recently even mortgage financing.
The DeFi products are secured by those real-world items, able to accommodate a decentralized set of agents and customers, and are based on the actual yields achievable for such financial transactions. More products designed to underwrite real-world financial aspirations and address underbanked communities are likely to continue to emerge.
Standards can be a significant catalyst for growth. The ERC-20 standard, for instance, helped the development of fungible tokens by making them easier to interpret across different applications and platforms. For instance, an ERC-20 token can be defined on Ethereum, BSC or Avalanche, and a user can manage them with clients developed by teams independent of those projects.
Examples of such clients include MetaMask, Brave or, indeed, any client implementing the ERC-20 standard. There are many developments that this has enabled, including the bridging of tokens across platforms. Similarly, the ERC-721 standard has been a catalyst for the growth of nonfungible tokens, allowing users to utilize different platforms and clients for managing NFTs.
A standard for representing decentralized financing for end users will likely have similar effects. For one thing, it will allow various development teams and projects to represent DeFi products in a consistent manner, which would reduce a lot of ad hoc interpretations and coding of DeFi contracts and aspirations. It will allow users to manage their DeFi products on different clients and browsers that support the standard. This would include automatic payment for DeFi loans or lines of credit, as well as potentially providing portability for DeFi products across platforms.
A DeFi standard would necessarily need to be encompassing enough to be able to define various types of DeFi products. This would include secured and unsecured DeFi loans, lines of credit, BNPL contracts, DeFi mortgages, and even crypto yield products currently prevalent in the crypto community.
This standard is defined such that it could be utilized for any DeFi contract, and would be based on a generalized form of DeFi consisting of a lender or asset provider, a borrower, and a potential repayment structure. For instance, a BNPL contract would be similar to a secured loan, having a principal amount, collateral, duration and terms, but where the interest rate would typically be 0%. Overall, the standard would define such broad and general ways to successfully define DeFi contracts. The standard would improve on existing DeFi and traditional finance contracts by allowing such contracts to be more portable, potentially transferable, and more easily tradable as collaterals by having a consistent form utilized by all users of the standard.
Assets need to have utility. They also need to provide rewards for those who deploy them. When these constructs work correctly in identifying and pairing those with funding with those in need of funding (who are also able to deploy resources efficiently and repay resource providers), they have been an important driver of growth and development in human societies.
These constructs drive enterprise and small businesses; fund commerce, mortgages and provisions of shelter; and touch every part of any economy. Societies that have developed more successful ways of identifying borrowers with lower default rates, utilizing credit scoring and other algorithmic means, including even AI, have tended to be more successful at lifting more members out of poverty than those that have not.
Decentralized finance has the promise and ability to reach millions not served by the traditional banking and finance system. This potential has a greater chance of being realized if DeFi shakes off its initial incarnations that focused more on products with bogus yields that were not underlined by any real value creation by borrowers and relied more on simply printing unbacked tokens.
Developing and utilizing standards in the creation of DeFi contracts would be a catalyst for leading the growth of DeFi when applied to responsible and well-grounded contracts and products.
This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.
The billion-dollar TVL has been driven by massive yields on the DeFi aggregation platform.
The total value locked on the decentralized finance protocol Rari Capital has surged past $1 billion.
The DeFi lending, borrowing, and yield generating protocol has surpassed the key milestone in TVL according to the app dashboard, and DeFiPulse confirms the all-time high TVL figure, reporting it at $1.09 billion.
On Sept. 30, Cointelegraph reported that Rari’s TVL had topped $500,000 so the doubling of collateral has taken around a fortnight. (DeFi Llama meanwhile, estimates TVL at $889M but going up fast.)
Rari launched in July 2020 to automate DeFi by optimizing and moving users’ funds to the highest yielding incentives at the time. It gained a certain amount of attention at the time as it was launched and run by teenagers and those just out of their teens.
Recent momentum has been driven by a number of liquidity pools offering higher than industry typical returns. It is currently offering a 21.67% annual percentage yield on USDC deposits and 26.43% APY in the DAI pool.
Its Fuse protocol has been extremely popular as it allows users to create custom lending and borrowing money markets with any assets and unlimited parameters.
The top pool called “Tetranode's Locker” has $655 million supplied, or 62% of the total, across 18 crypto assets earning various yields. Within that pool, the OlympusDAO sOHM token is currently yielding a whopping 7,594% APY.
OlympusDAO is an algorithmic currency protocol that allows users to supply crypto assets such as ETH or DAI to create bonds that back its native currency OHM. The complex bonding process acts as a hybrid fixed income product and a derivatives contract with quotes provided in OHM for trades at a future date.
Rari Capital thanked the “Ohmies” for helping propel its TVL to record levels.
Thank you Ohmies https://t.co/EL5M4yzeI4
— Rari Capital DAO (@RariCapital) October 12, 2021
Rari also offers permissionless pools which allow any user to create any pool of assets including NFTs offering any interest rates.
Venture Partner at 3SE Crypto, David Silverman, congratulated the young team on the achievement:
“Huge congrats to @JackLipstone @jai_bhavnani @davidslucid and the whole @RariCapital team!”
The Rari protocol, like most in the DeFi sector, has its own governance token called RGT which has also been performing well recently.
Related: There’s more to DeFi than just providing liquidity
RGT hit an all-time high on Monday, Oct. 11 when it surged to $34 according to CoinGecko. It has gained 50% over the past fortnight and is up 93% over the past 30 days. At the time of writing, RGT was changing hands for $29.77.
Rari Capital was exploited for $11 million in May which caused token prices to crash to $4.80 following the hack.
The seasons are turning and the markets are shifting — could it be a strong summer for decentralized finance?
Fire up your tractors: The farmer’s almanac of decentralized finance is indicating that DeFi Summer 2.0 could feature some healthy yields across the ecosystem.
Multiple common metrics used to gauge the health of the DeFi space are pointing toward a looming bull market, but perhaps most promising of all might be the surge in Curve’s CRV governance token price.
Often referred to as one of the “backbone” protocols of DeFi, Curve is an essential tool for many retail and protocol-level yield farming strategies. Curve allows for low-cost, low-slippage swaps of similar assets — for instance, swapping between different stablecoins such as Dai, USD Coin (USDC) and Tether (USDT) — and users who deposit liquidity into Curve’s pools get trading fees as well as CRV governance token emissions as a reward.
As a result, the protocol is the seventh-largest by total value locked per DeFiLlama, with $6.49 billion in assets, and functions as the primary yield-bearing protocol leveraged by yield vaults like Yearn.finance.
Remember $CRV is the underlying yield on so much of defi:
— Cryptoyieldinfo (@Cryptoyieldinfo) January 17, 2021
All yields are about to become supercharged across dozens of protocols with strength of $CRV price.
I think we're about to have a good few weeks ahead.
If the price of CRV can be used as an indication of how many common farming strategies will perform in the coming months, then the summer is looking to be bright green.
CRV is up 4.6% on the day to $3.94 at the time of publication — part of a month-long rally carrying it 51.1% higher, per CoinGecko.
Part of the rally is fueled by CRV’s tokenomics. CRV holders have the option to lock their tokens for a four-year period in exchange for veCRV, which grants them access to additional protocol fees and boosted yields. Likewise, as the rest of DeFi rallies, as a top protocol, CRV prices should drift upward as well.
However, veCRV holders have also been the recipients of a number of lucrative airdrops as of late. Ellipsis, an “authorized fork” of Curve on Binance Smart Chain (copying the protocol down to the frontend, which is reminiscent of Windows 98), airdropped an initial round of EPS tokens to veCRV holders. Likewise, Convex Finance, a forthcoming platform aiming to “simplify staking on Curve,” has also announced an airdrop to veCRV holders, though the details of the drop have not yet been released.
Airdrops can often be a tricky affair. Protocols want to attract governance token holders who will be loyal to the project and provide informed votes. While in many cases that means distributing to wallets that formerly and frequently interacted with a protocol, with upstart projects building on the backs of others, distribution parameters can instead be intended to attract an especially knowledgeable community — and veCRV holders fit the bill.
In the end, it has the potential to create a virtuous cycle for all of DeFi: Speculators buy CRV to convert to veCRV in the hopes of receiving an airdrop; CRV’s price rises; DeFi’s yields grow fatter.
As the fate of CRV and the strategies that depend on it for yield play out, a host of other metrics are pointing to a strong summer for DeFi.
DeFi’s TVL figure currently sits at $123.29 billion, having climbed another $20 billion after eclipsing the $100-billion mark just last week. Even as the wider market pulls back after an exceptionally strong Thursday, multiple DeFi projects remain green on the daily and weekly, such as Curve and Compound, and OG projects like Maker are on a tear, with the MKR token eclipsing $4,000 for the first time yesterday.
The surge has multiple observers praying for a “DeFi Summer 2.0.” While throughout the winter and spring, a handful of DeFi Gen 2 tokens managed to overperform, and the sector looks to be the recipient of a strong rotation into older, established projects. Last summer, the space took off in a major way — but was also marred by a spate of hacks and exploits.
DeFi Summer II: Electric Boogaloo
— Jason Choi (@mrjasonchoi) April 15, 2021
Ultimately, however, the greatest sign in the stars for DeFi (as well as the larger market) is the performance of a joke: Dogecoin (DOGE).
The meme currency is hungry for blood, eclipsing five-digit gains on the year at 12,600%. Traditionally, when the Shiba Inu runs, other altcoins follow — another bellwether pointing toward a bumper DeFi harvest.
Remember the coolest part about $DOGE pumping is the money always ends up flowing into other alts when it's done.
— K A L E O (@CryptoKaleo) April 16, 2021
The popular safe-haven asset gold recently posted the lowest settlement in three weeks, as a firm dollar and bond market yields have weakened support for the precious metal. The financial goliath BNY Mellon also published a report about the differences between gold and bitcoin and the study said that the crypto asset “fits the description […]