Decentralized finance is so far thriving in cryptospace. DeFi is evolving in various ways, finding its supporters and opponents.
Let’s see where DeFi came from and why some people perceive it as a bubble.
DeFi vs. ICO
DeFi was created in 2017. Due to the events of this year, people considered it to be another bubble. 2017 was rich in ICO supply, which were projects with an initial supply of cryptocoins. Anyone interested in cryptocurrencies at the time noted that there were many ICO projects that offered investors high revenue. However most of them were either outright scams where investors never saw their money again or projects that failed to deliver their promises.
DeFi started on Ethereum’s blockchain. In 2017, the first decentralized stock exchanges and credit protocols began to appear here. Two years later, the total value of DeFi exceeded $ 500,000, by February 2020 it had already reached a million dollars, and now it is almost three times the amount – $ 3 million.
Possibilities of decentralized financing
Today we live in a centralized financial system. However, people are beginning to realize that many things from the banking system are not suitable for them, and that in this system there is almost no way to profit from money.
At the moment, we can find better interest rates in the DeFi area than in the classic banking system. 1% yield is offered now by very few centralized financial products. That is due to the central management of the banking system, where interest rates are set up by the central bank. There is no such thing as central bank in digital currencies. On the other hand, investors have to be more careful as all they bear the whole risk themselves.
Bubble or not?
Several good projects have emerged from the ICO, such as the Brave browser. But we can also expect fraudsters trying to use DeFi to get money from investors quickly and easily. But it is almost certain that some projects will be worthwhile.
We know that investing in cryptocurrencies can be very risky. If you decide to invest in a project, find some information about it first and look for the reactions of those who have already invested. The whitepapers for these projects are usually very well written, and can signify a worthy invesment.