5 Bulls and 2 Bears for DeFi Entering 2023 (Opinion)

The DeFi world, along with the rest of cryptocurrencies, is still in the grip of fear and awe. The crypto winter of 2022 continues with no clear end in sight. With no vision of a market bottom forming in the near term, some investors are starting to wonder if DeFi is dead on arrival.

But there is some inspiring data about the health and usage of today’s most prominent DeFi ecosystems. The winners will continue to play through the next major cryptocurrency rally. They give crypto investors, developers, and entrepreneurs alike great hope for the future of decentralized finance.

Like the price of bitcoin, so is the price of the rest of the cryptocurrencies in the market. So the price drop of all major DeFi altcoins in 2022 was more about correcting the BTC bubble at the end of 2021. Last year’s price winter doesn’t mean there is no future for decentralized finance.

Although DeFi blockchains have seen the prices of cryptocurrencies traded in the market drop dramatically in 2022, the drivers that power them are incredibly strong. Over time, it will become more powerful, with upgrades to more advanced features such as enhanced security, complete privacy with floating keys, and zero-knowledge proofs.

Long-term bull and bear issues for DeFi

Overall, the future of decentralized finance is bullish for five reasons and bearish for two.

It is bullish for the following reasons:

1) The misery of central finance in 2022 is a strong case for DeFi.
2) Major DeFi cryptocurrencies have strong fundamentals.
3) Technology and security development at breakneck speed.
4) The incumbents continue to make DeFi integrations.
5) Institutional investors are circulating the waters to invest in DeFi coins.

It is bearish for the following reasons:

1) The state of carnage in DeFi prices and some platforms is still real. Investors are feeling the burn and many are left wary. It will be an uphill battle to earn trust as reliability and reputation improve.
2) The potential for threats and regulatory risks to DeFi investments and business models continues to loom large in the field of decentralized finance, just like the rest of cryptocurrencies.

Let’s dive in!

Bearish: The Case of Carnage in DeFi

DeFi has ruthlessly reduced its market capitalization over the past year, along with the rest of the industry. There is an understandable reason to remain bearish on DeFi related cryptocurrencies in the short term. Especially without the technical indicators that point to a market bottom soon for coins like Ethereum (ETH), BNB Coin (BNB), Uniswap (UNI), Polkadot (DOT) and Solana (SOL).

Ethereum, over the course of 2022, has seen a staggering 76% drop in TVL (Total Value Locked) in DeFi protocols. The total value of all cryptocurrency held for storage, lending, or pledge in decentralized finance applications was $95 billion in January to start in 2022. By the end of the year, that had fallen to around $23 billion.

This number is calculated, of course, using the fair value or fair price approach, given the average market price of the cryptocurrency in the liquid cryptocurrency markets on the date the measurements were made to determine the TVL.

All cryptocurrency prices have collapsed along with the price of bitcoin in 2022. Much of TVL’s big drop is simply a matter of the market cap of bitcoin and ether slipping into buyer territory. Not everything is as bad as the flight of capital from the Ethereum platform – people take their cryptocurrency locked at the end of the decade and walk away.

Downward: Regulatory Threats

Regulators everywhere, especially in the US, are making the rounds with the entire cryptocurrency industry, and DeFi is no exception. Increasingly this has happened after a range of protocols, bridges and even non-fungible token (NFT) platforms have been exploited, resulting in hundreds of millions being stolen or hacked.

A high-profile case is underway, though not in the US, against Tornado Cash developer Alexey Pertsev. The Dutch authorities recently extended his sentence, and he will remain in prison until February 20, 2023.

It seems that the entire cryptocurrency community will come to the developer’s defense, with many arguing that Tornado Cash is just a privacy platform and developers shouldn’t be responsible for how some people choose to use it.

At the same time, it is becoming increasingly clear that regulators around the world are targeting the nascent field of decentralized finance. Several teams have been charged by the SEC with selling unregistered securities, and it looks like the crackdown is just beginning.

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Bullish: CeFi Crash Highlights Benefits of DeFi

One of the reasons for the decline in decentralized finance is serious concerns about the level of security from cyberattacks. Defi applications were hit hard by hack losses in 2022.

Since there is no central monitoring office, there is no accounting department that can make an adjustment to fix something wrong with your account, because DeFi is a place where code is law and anything possible through code is possible through code – hackers love targeting decentralized finance apps and users.

At the same time, it created a natural niche in the challenging field of cybersecurity that served platforms that hadn’t experienced any major hacks or technical setbacks well.

And while DeFi is a tough testing ground for more resilient distributed crypto network technologies, it looks very good in 2023 after the amount of trouble central finance got into last year.

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FTX, at one time the third largest crypto exchange in the world, has crashed and burned along with FTT token and trading arm Alameda Research.

This was followed by Voyager Digital, which was bailed out by FTX for $200 million before its collapse.

These were just a few of the central financial meltdowns of 2022, with Celsius and CEL token ($4.7 billion in insolvency issuance), Three Arrows Capital ($10 billion in assets under management and $700 million in default), and BlockFi bankruptcies. (debt between $1 billion and $10 billion).

It will fuel tons of future demand for developments that are able to withstand the forces of human excess and remain a growing, stable, and independently operable blockchain ecosystem solution.

Bullish: Strong Fundamentals for DeFi Crypto Platforms

The basic business model of the DeFi sector on cryptocurrency platforms is profitable and profitable. It provides a wide open space for the development of Web 3 technologies and applications, which is a new frontier for the Internet, which after publishing and communication is in the stage of economic development.

The number of DeFi users (as extrapolated from wallet addresses) increased rapidly from 2019 to Q2 2022.

It is a very healthy use. Now, the number of new wallet addresses created for DeFi applications decreased in the second half of 2022, but that was entirely attributed to the crypto winter. Although this is not over yet, like previous cryptocurrency winters, it will eventually melt.

According to DappRadar data, the total value locked in DeFi smart contracts reached $40 billion at the end of November, with cryptocurrencies affected by the Alameda-FTX exchange crisis. This number is sure to swell with cryptocurrency prices when there is a rally. That’s what investors count on with their money parked like this.

Up: Better security and privacy

Another reason to be positive about the future prospects of the DeFi industry is the quality of its products and the rapid pace of improvement in bringing the core value proposition of these products to its addressable markets.

Take Uniswap, for example, the decentralized exchange that has managed to keep 50% of DEX exchange volume stable over the past year. It always works, always works, always works the same way, 24/7, a vending machine for crypto financial services.

Its smooth operation and avoidance of hacks or scandals has kept it afloat well during this turbulent period of crypto winter. Distributed, immutable, and protocol-independent solutions that can be implemented across the Ethereum ecosystem have earned DEX and the team behind its development awards and a reputation as one of the strongest brands in crypto.

Meanwhile, DeFi cryptocurrency products are improving at an accelerated rate. Teams struggle to develop cutting-edge solutions in a race for users, market share, and capitalization. Products are improving at a remarkable rate.

Some of the cutting-edge developments in cryptographic technology with abundant use cases in the DeFi sector include better security and privacy with multi-party secure accounts or “floating” private keys and more secure zero-knowledge implementation in cryptographic authentication, authorization, and accounting.

DeFi will also continue to boast massive throughput in the coming years in Layer 2 scaling and interoperability. We are already seeing the importance of this trend at the turn of the year when Lido Finance outperformed MakerDAO in TVL due to its liquid staking Ethereum solution.

Up: Entrepreneurs making DeFi integrations

But another good reason to be positive about the future of DeFi is the number of established companies that have already implemented DeFi integration into their products and systems for their customers.

For example, MakerDAO has partnered with banks to offer collateral-backed DeFi loans (RWA) on the blockchain. When MakerDAO announce thisThis was the first time in business history that there was a “commercial loan between a US-regulated financial institution and a decentralized digital currency.”

Smart contracts on distributed networks that are reliably secure are particularly attractive to the traditional financial industry. Use cases include flawless processing of insurance claims, transparent review, real-time forgiveness and settlement, versatile coding of new financial products, accurate contracts, and streamlined KYC compliance that customers will like better than methods that operate within the constraints of tradfi technology.

Taurus: Institutional investors looking to decentralized finance

Institutional investors are also moving in anticipation, ready to make investments that access the massive capital flows of cryptocurrencies that underpin decentralized financial ecosystems. Investors in these tokens and coins will notice an uptick in the currency markets for their most important DeFi cryptocurrency when that happens.

5 Bullish and 2 Bearish DeFi Going Into 2023 (Opinion) appeared first on CryptoPotato.

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