DeFi shows no signs of stopping.
Currently, there is more than $176 billion worth of total value locked (TVL) in DeFi, representing an increase of about 30 times compared with the same point last year.
The TVL of DeFi even managed to increase over September, despite slight pullbacks for both Bitcoin and Ethereum. This means that investors have enough faith to leave their crypto locked into smart contracts while earning rewards through difficult market conditions.
DeFi has been one of the revelations of crypto's meteoric rise this past year. Holding cryptocurrencies is a great way to store value.
DeFi offers investors a whole new way, not just to store their money, but to use and earn from it.
It started with liquidity pools which allowed users to supply liquidity to both sides of a trade. This decentralized the whole process of trading cryptos and in effect is what the entire DeFi market is built on.
Investors were able to yield farms by supplying liquidity to the pools on these decentralized exchanges.
This was the first time such a large part of the crypto world was able to earn a return on their assets while supplying a service that decentralized traditional financial processes.
Since then, however, DeFi protocols are offering more and more complex mechanisms for users to invest their money. This in turn has meant that investors have more and more ways to earn rewards.
AAVE is currently one of the largest DeFi protocols in the ecosystem and allows users to borrow or lend crypto to invest back into the market.
Crypto derivatives meanwhile have proven a viable alternative to the stock market.
Protocols like Synthetix create a synthetic stock market where crypto assets are tied to the value of real-world stocks and shares. Even DEXes are diversifying their services with more and more of them offering multichain options to their clientele.
The Next Step for DeFi
The more protocols that spring up as part of the DeFi ecosystem, the more centralized financial processes are challenged by the decentralized world and DeFi was never going to stop there.
The financial instruments available in traditional finance are still far more varied and complex. Each one of these instruments is just for space that DeFi has the potential to fill.
The arrival of more protocols offering leveraged trading into the DeFi ecosystem shows just how comprehensive a package DeFi can offer traders.
dYdX is one such protocol that has very recently risen to prominence. It allows its users to trade perpetual contracts with low fees, deep liquidity, and leverage 25 times.
Leveraged trading has long been a feature on centralized exchanges such as Binance (one the largest centralized crypto exchanges).
It is one of the most used tools that exchanges such as these offer their users so if decentralized alternatives are to compete it is vital that they are able to offer leverage in a reliable, fast and affordable way.
However, maybe the most interesting application of leverage is in a process that is just growing in popularity known as leveraged yield farming. Leveraged yield farming allows users to take advantage of the huge return rates offered by DeFi with leveraged capital, meaning they can multiply their rewards.
What is perhaps most exciting about this is that, like other forms of yield farming, it has no direct competitor in traditional finance. This is a new way to invest money that can not possibly be replicated by centralized institutions.
What’s more, many of these protocols are offering this process with built-in protection from price crashes. Apricot and Gro both feature products that mitigate risk.
Apricot Assist, for example, is an auto-deleveraging tool that protects a user's account from being liquidated if the portfolio leverage reaches a programmable trigger level, mostly via redeeming users' staked tokens or partially selling collateral to repay borrowed funds Gro, meanwhile, features a risk balancer that distributes smart contract and stable coin risk in a targeted way.
This is only the beginning. Each of these new protocols represents one more step in the decentralized revolution. There is nothing that the centralized financial world can offer to investors that DeFi cannot and, as some of these projects show, DeFi can go in directions that legacy finance just cannot follow.