Does decentralization help in creating value for cryptocurrencies?
As of date, a decentralized product without a centrally controlled entity may not be there.
For all Bitcoin (BTC) enthusiasts, the global requirement for decentralized currency is greater than any other time in recent memory. It is because, across the world, there is more pressure on the government for cash printing as well as defense needs. It’s conceivable that this thought is pulling in new investors towards crypto, yet the current week’s rise in price can be related to circular excitement among the traders that already deal in cryptocurrencies.
The scenario looks genuine for ether (ETH). It is also the number two crypto resource, and it surged past Bitcoin during the week by about 24% compared to Bitcoin’s 18.7%. Ethereum’s buzz is mainly due to decentralized finance (DeFi).
Within the week, the DeFi’s TVL or the total value locked rose to $4 billion as reported by bitcoins circuit website, mainly due to Ether owners and owners of different cryptocurrencies going for liquidity rewards. These were paid by native token holders that are made by the lending systems of DeFi. Here, we take a look at some of them along with some other points.
- There are some good examples –A vital part of DeFi deposits is ‘Yearn. Finance’ that has a superb token YFI. YFI became a clear winner for the week. It took DeFi’s sophisticated DAI, to reach new issuance heights and back again. This case of circular excitement isn’t the only one: the inflationary token AMPL and the COMP token from Compound Labs’ also use the same types of mechanisms. The positivity for these DeFi systems was not disappointing by Tuesday’s news, which stated OnDeck (ONDK) would sell for $90 million to a fintech lender. It was only in 2014 that OnDeck became public limited at a staggering price of $1.3 billion. It is still perplexing what activities do the DeFi platforms perform so well that lending fintech could not do. In the meanwhile, Ethereum’s basic suggestion is taking on a shade of incongruity.
- DeFi is doing wonderfully – There is no doubt that DeFi is fascinating, yet the fees and transactions of Ethereum are being pushed up by tether (USDT). Moreover, it is a stable coin that enjoys a centrally monitored dollar peg. It breached the $11 billion on Wednesday in issuance. DeFi’s performance is undoubtedly amazing, but so far, it’s been surpassed due to centralized projects.
A reason for tether demand going up is also due to circular trading. As ‘Skew’ mentioned, the difference between cash cost and future cost, on one of the world’s most fluid cryptocurrency futures markets, increased by 20% this week. With the borrowing rate of the tether staying somewhere in the range of 6% to 10%, borrowing it to do Bitcoin trade can be a pleasant method for a safe return.
- Fueling the speculation – An area that seems to be handled well by centralized providers like iFinex is the fuelling up of speculative markets. The most esteemed applications in crypto to date are centralized exchanges such as BitMEX or Binance. Their administrators have created new market structures that have removed boundaries of geography and wealth that constrained access to risky and high-volatility investing just like Robinhood did in the U.S. In that manner, the “Robinhood Effect” may create a danger to crypto from stocks. Moreover, stocks are also traded now unhindered by onramps that helps them to broaden their reach. In this regard, Kodak (KDK), which gave its access in 2018 to an ICO, is a prime example.
- Decentralized exchanges can be important – FTX is a provider of volatile and sophisticated financial products, and it has recently launched Serum, which is a decentralized exchange (DEX) dealing in crypto derivatives. By all accounts, it hardly makes sense. Binance’s DEX is the best until now. Possibly FTX’s DEX may exceed its bigger rival, or it may not, but it is a good strategy to have a DEX. If stock markets increasingly seem like crypto markets for their instability, these DEXs may become more significant.
For the time being, crypto remains at the forefront. Later on, traders may get something else. Bitcoin offers access to cash anywhere, irrespective of inflation or government obstruction. DEX offers similar value for speculation and trading.
As of date, a decentralized product without a centrally controlled entity may not be there. In the future, with greater acceptability of crypto assets and favorable geopolitics, it can be a reality. Perhaps DEX-building is not a move to shield existing crypto markets from controllers. It can be a very good move to get ready for markets that are less-regulated in the future.
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