Since DeFi’s infrastructure is siloed, transaction costs have rapidly increased
According to data from the analytics platform, DeFilama, the decentralized finance (DeFi) market grew exponentially from $112 billion in 2020 to $229 billion in TVL. Originally a niche industry, it now attracts major institutional players and VC funds such as Sequoia Capital and a16z. Based on the trajectory DeFi has taken over the past few years, here are the latest DeFi trends to watch.
Social Tokens vs Fan Tokens
NFTs fall into the same category as social tokens and fan tokens, despite their slight differences. Artists and creators issue creator tokens to monetize their work or themselves. Creators and fans have a direct, mutually beneficial relationship with social tokens, eliminating middlemen. In order to boost community engagement, brands or clubs issue fan tokens. You’ll also be able to vote on club decisions, design merch, and enjoy exclusive experiences as a member.
DeFi Governance tokens
Tokens issued by protocol developers that provide token holders the right to vote on protocol initiatives are called government tokens. They can also serve as collateral. As MakerDAO’s Maker (MKR) tokens were introduced, government tokens began to emerge. Aave, Yearn Finance, Curve Finance, Compound, Uniswap, and others, have collectively accumulated between $40 and 180 billion in TVL from their governance tokens.
Decentralized & Colateralized Stablecoins
With more decentralized and collateralized stablecoins such as DAI, stablecoins can be minted while introducing high-quality collateral at the same time. New trends in stablecoins, such as algorithmic non-collateralized stablecoins, offer users improved price stability over collateralized stablecoins. TerraUSD (UST) maintains its fiat peg by using a dual token system with the LUNA coin serving as its governance and fee-paying token.
Cross-Chain DeFi technologies
DeFi has grown quickly, resulting in increasing and unsustainable transaction costs due to its siloed infrastructure. Due to high gas fees per transaction, cross-chain solutions are necessary to facilitate scalability. Using cross-chain technologies, smart contracts can be transacted on multiple chains, making blockchains interoperable.
With projects like Polkadot, users can build custom blockchains and carry out transactions and asset movement more efficiently by distributing them across multiple chains. An additional cross-chain technology is the Cosmos ecosystem, which acts as a layer between several independent blockchains and facilitates interoperability and communication between them. Using an aggregator platform such as Frontier, DeFi activities on different blockchains are linked together through a user-friendly interface, facilitating interoperability within the DeFi space.
Derivatives & Smart Contracts
A derivative is a financial instrument which derives its value from another asset or collection of assets. In traditional finance, derivatives markets allow people to invest in things that are backed by assets such as stocks, commodities, and currencies. Contrary to conventional finance, derivatives are not created by a central body. Smart contracts allow anyone to create and manage derivatives on the blockchain transparently. Synthetix, for example, is a platform that lets users create decentralized blockchain assets that are pegged to other assets, such as stocks and commodities.
Facebook’s Rebranding Into Metaverse
Metaverse gained popularity after Facebook rebranded to Meta. Metaverse’s commitment to building a digital ecosystem validated all of the company’s projects as established institutions, and web2 companies began to see the potential in the transition to a digital society.
A growing number of institutions are investing in and adopting cryptography across a wide range of sectors. Numerous fashion brands are joining the trend, including Adidas and Nike, which have set up shop on platforms such as Sandbox and Decentraland. Moreover, Walmart is entering the Metaverse market. Microsoft’s acquisition of Activision Blizzard is another indication of how valuable these companies see the Metaverse.
Crypto Futures ETFs
Investors can access a diverse set of assets through exchange-traded funds (ETFs). Traditional investors would be able to incorporate crypto assets directly into their portfolios by investing in crypto ETFs without having to navigate crypto exchanges themselves. There were several crypto futures ETFs launched in 2021, including ProShares Bitcoin Strategy ETF, which gained $1 billion in assets under management within 24 hours of trading.
Cryptocurrency is booming as the world grows. The daily crypto gaming transactions in 2021 were between $80M and $100M. These numbers indicate individuals are switching from traditional to digital gaming. As the DeFi ecosystem grows, Frontier wallets ensure interoperability of features so that users have access to them from one location. We see a future where users are able to easily navigate between DeFi features and solutions while earning income, including trends such as the Metaverse, an intersection between NFTs and AI.
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