2017 was the year of ICOs with over $6 billion raised. 2018 proved to be the year of stablecoins as the cryptocurrency market decline prompted the demand for stability. Their total supply has recently reached $5 billion. Powered by the demand for stablecoins, new financial instruments have emerged, such as lending solutions, which opened the door for new opportunities during these turbulent times. As a result, 2019 is likely to become the year of DeFi.
DeFi is shorthand for decentralized finance, i.e. the emerging field of decentralized finance apps running on public blockchains and working without the need for banks or other financial intermediaries but rather utilizing smart contracts in their stead. DeFi is borderless, trustless, transparent, and available to everyone with internet access.
Today, DeFi is first and foremost about p2p lending. In 2019, the entire amount of assets involved in DeFi exceeded $500 million, with most of them used in two kinds of credit operations. The first is the issuance of a stablecoin, which is in fact a crypto asset-backed contract for difference (a certain DAO issues a stablecoin and lends it to a user with their crypto asset as a collateral). The second is about various p2p loans on the secondary market that use crypto assets as a collateral.
However, DeFi is much more than just that. It’s a viable alternative to the traditional finance. You may borrow money from a bank using your car as a collateral, or borrow the same amount in a decentralized app with your cryptocurrencies as a collateral. In the future, you might borrow money from a decentralized app using your car as collateral. DeFi is a new evolutionary phase of the cryptocurrency and financial ecosystems. After all, decentralized money has to be complemented by decentralized credit sooner or later. In ten years’ time, we might see ‘Decentralized Money and Credit’ as a legit university course.
Apart from that, DeFi is also about decentralized prediction markets and marginal trading exchanges; offchain payment networks and exchange smart contracts that enable one to earn from providing liquidity; DeFi is token baskets that automatically rebalance following your investment strategy; and even a decentralized investment fund whose hacking brought about the legendary Ethereum hard fork. The amount of possible instruments Defi can enable is arguably unlimited.
If you didn’t understand much of the previous three paragraphs, it’s totally okay. Actually, the most massive hindrance for mass adoption of cryptocurrencies is just that: they are too difficult to use, and the general public is still unaware of what they are and why they are so important for us all. The same thing happens with DeFi as well. It took years for bitcoin evangelists to persuade the general public that cryptocurrencies are no pyramid scheme or a fringe fun for wannabe cyberpunk anarchists, but actually the next phase in the evolution of money. DeFi will likely have to walk a similar road. And the first step in that journey is to expand the DeFi community beyond the in-gathering of enthusiasts.
We launched this blog in order to support the facilitation of public access to the ideas of decentralized finance. And we start with two sections: DeFi 101 and Inside WINGS.
DeFi 101 will focus on the basic ideas of DeFi, the current state and the perspectives of the industry, as well as its risks and advantages. The goal of this section is to allow any rookie reader to grasp the fundamentals of DeFi in all their diversity. It will also feature guides for new users so that they could take their first steps in this area. If you are interested in spreading the word about DeFi amongst the general public, please contact us with your ideas, posts, research projects or any other thing you deem interesting.
As much as popularization is important, the development of the ecosystem is crucial as well. WINGS Foundation has chosen this area as their priority, hence the title of our other section, Inside WINGS. Therein, we’ll share our experiences in researching and developing new DeFi products; talk about our impressions from conferences and meetups; and introduce you to our team, partners, and independent enthusiasts.
We’ll soon announce a new DeFi product that will be the focal point of yet another section of this blog, but all in due time. In the meantime, feel free to sign up to our newsletter and stay tuned.