Why it matters: The decentralized finance (DeFi) movement has caused renewed interest in the crypto market. With Bitcoin’s value averaging $10,000 in the past year, the lack of notable crypto white swan events such as a halving episode has led to some sought of stasis. The emergence of DeFi networks has saved the situation.
These decentralized platforms encourage the pooling of digital tokens to provide financial service liquidity in exchange for interest. Thanks to the immutable blockchain, DeFi projects, which are mostly powered by the Ethereum network, allow crypto enthusiasts to lend funds at high interest and take microloans through peer-to-peer network setup.
The DeFi concept is based on the visionary principles of the pseudonymous Satoshi Nakamoto, the creator of the Bitcoin network. They include transparency, financial inclusion, and accessibility. Devoid of centralized control, one only requires an anonymous account to access DeFi services. This is a major benefit for crypto fans who value privacy and one of the main reasons major crypto projects are touting Defi products alongside their main offerings.
Many of them are rebranding into DeFi in order to trigger token price jumps. Similar enthusiasm and subsequent price trends were last witnessed during the 2017 crypto price boom. It led to Bitcoin reaching the $19,500 price mark.
Tron TRX is among the latest coins to experience a sudden uptrend following a DeFi product launch. The digital currency surged 60 percent last month after Tron unveiled the Sun Genesis Mining DeFi token. Sun Genesis is staked using Tron’s TRX coins. Staking is the process of holding a designated digital currency to earn interest. The practice is referred to as Yield Farming in crypto circles. It causes demand for staked coins to increase, thereby causing a price spike.
The Sun Genesis Mining token was announced by Tron Founder Justin Sun. (Image: Qz)
The Sun Genesis Mining token was announced by Tron founder, Justin Sun, as a coin designed “to promote the vigorous development and possibilities of TRON’s DeFi self-governance community.”
More innovative DeFi projects have cropped up. The Tao Network is among the latest companies to jump on the DeFi bandwagon. Its blockchain-based platform allows music settlements to be made directly via its decentralized system. Going by its most recent announcement, it is “building DeFi of entertainment.”
Among the biggest supporters of DeFi right now is the popular Binance exchange. The platform's US subsidiary recently joined the Chicago DeFi Alliance to better contribute to the country's current movement. Binance publicly supports BurgerSwap, an automated market-making (AMM) platform where users earn Burger token on staked coins. According to the DeFi Pulse tracker, the ecosystem is snowballing. It currently has over $11 billion in cryptocurrency assets locked in.
Current risks associated with partaking in DeFi projects include susceptibility to vector attacks. The prices of primary locked-in assets can also change without warning and lead to losses. Lastly, the lack of regulation around the millpond environment increases the probability of encountering DeFi scams.
Image credit: Forbes