- In a recent blog post titled “2019 Was The Year of DeFi (and Why 2020 Will be Too)”, ConsenSys describes the current state of the DeFi and gives an outlook on how it could develop in 2020.
- According to the author, there will be an explosion of new assets in 2020 that will create tens of millions and eventually billions of dollars.
In a new blog post titled “2019 Was The Year of DeFi (and Why 2020 Will be Too)”, ConsenSys has taken a look at the development of Decentralized Finance (DeFi) in 2019. Mason Nystrom writes that in the history of the blockchain, there has always been an overarching trend in each year – in 2009 Bitcoin, in 2015 Ethereum and in 2017 Initial Coin Offerings. According to Nystrom, the biggest trend in 2019 was the decentralised finance movement.
With the DeFi, the Ethereum developers have created a trend that is intended to combat failed fiscal policy, currency manipulation and a shadow bank system that continues to feed fee-paying financial intermediaries. According to Nystrom, the DeFi is creating a paradigm shift from today’s closed financial system to a financial economy based on open protocols that are interoperable and programmable:
Ethereum is creating a new on-chain economy that integrates with current financial systems. Open finance is not about creating a new system from scratch, it’s about democratizing the existing system and making it more equitable using open protocols and transparent data.
The success stories of the Ethereum DeFi in 2019
In his article, Nystrom cites a whole series of examples that have contributed to the success of the Ethereum DeFi in 2019. Arguably the biggest success story is MakerDAO. The protocol was the first that created the basis for granting loans decentralized on the Ethereum blockchain. MakerDAO developed a speculative asset class that has managed to gain wide acceptance.
While MakerDAO Vaults (formerly CDPs) have allowed users to borrow Dai with Ether as collateral, Compound and Fulcrum have created capital pools that allow users to borrow crypto assets such as DAI, USDC, Ether (ETH) and other crypto currencies. Dharma is also a crypto lender, enabling lenders and borrowers to earn interest on their cryptocurrencies. Most recently, the highly anticipated upgrade of MakerDAO from Single Collateral Dai (Sai) to Multi Collateral Dai (MCD) was successfully implemented.
Nystrom summarized the developments as follows:
These various protocols showcase the power of composability: 1) Dharma provides an open platform by 2) leveraging Compound’s open protocol, 3) which predominantly lends and borrows the dai stablecoin created by MakerDAO’s protocol, 4) all on top of Ethereum. Boom.
With regard to the development of decentralised exchanges, the study notes that trading is currently still dominated by a few large companies, notably Coinbase, Kraken, Gemini, Bitstamp, Bitfinex and Binance:
While centralized trading has been widely popular (and profitable), it’s not quite the new financial economy most crypto enthusiasts and entrepreneurs are hoping to achieve.
The largest decentralized exchange on Ethereum to date is Uniswap, which reported a trading volume of over $8 million over a 24-hour period in November 2019. So far, Uniswap accounts for around 33% of the total DEX volume, outperforming IDEX and Kyber.
Great expectations for 2020
For next year, ConsenSys expects an explosion of new assets and derivatives that will generate a value of ten million US dollars, which will eventually reach billions, as Ethereum’s open financial approach opens up a completely new financial economy:
There will be an explosion of synthetic assets and new derivatives which will create tens of millions in value in 2020 and eventually billions in value. Some will be shit (literally), while others will be new and novel. New financial products and instruments are continually being developed that will drive further liquidity and potential profits for investors.
For ConsenSys it is clear that Ethereum will be the basis for the new financial system:
It’s clear that Ethereum has established itself as the protocol that will become the foundation for the new financial economy. In 2020, new and existing companies will develop on top of borrowing and lending protocols that will enhance efficiency and build new products.