Is it the End of Decentralized Finance or the Beginning? Blockchain Investor Shares His Thoughts
Decentralized finance, often abbreviated to DeFi, is an emerging sector of the cryptocurrency industry. While government commodities like gold were once backed by fiat currency, cryptocurrency has never been backed by anything. Decentralized finance is separate from any government institution, bank, or agency. These technologies are built from the ground-up and rely on blockchain ledgers and smart contracts.
But is decentralized finance just a fad or will, it grow to become something much more significant? Plenty of recent events, such as the bZx hack and CryptoCore’s phishing scams, have raised skepticism about the industry. Is something as new and radical as decentralized finance worth the hype? Will it slowly fade out of existence like Livestrong bands, pogs, mullets, and Pokémon Go? Or will it rise in popularity to unprecedented heights?
“Decentralized finance is here to stay for a very long time,” said Sergej Heck, founder, and CEO of crypto education platform MarketPeak and Initiator of PeakDeFi.com, a decentralized performance-based Fund. “Investor interest has grown exponentially just this year. For example, there were around $500 million invested in decentralized finance projects during March earlier this year. Five months later, that number grew to $7 billion. This number will only increase over time.”
Heck also notes that many cryptocurrency projects have increased value by tenfold or more in the same period. For example, Ren, Synthetix, Aave, and Compound are just a few names that grew exponentially within a few months.
“Decentralized finance will go strong for at least another two years thanks to the incredible hype behind it,” said Heck. “I fully expect a bull market around the corner, and I intend to benefit from it.”
Yet, many people are concerned about cryptocurrency’s viability and safety. Many high-profile financial gurus expressed skepticism towards the idea. Berkshire Hathaway’s Warren Buffett said that cryptocurrencies “have no value” and “don’t produce anything.” Morgan Stanley’s Jaime Dimon once called Bitcoin a “fraud”; now, his company is getting in on the crypto game as well.
Heck acknowledges that shady figures are creating fake coins, but isn’t deterred.
“The next bear market should wash out all the bad decentralized finance projects,” he said. “The 2017 crypto bull run happened partially because of many ICOs, and most of them were worthless without any value or realized product behind. Now, investors are more serious about examining any project they want to put their money towards. Many blockchain or cryptocurrency projects, especially DeFi projects, worth its salt will have to undergo an audit before investors consider putting forth a single penny.”
Decentralized finance offers many benefits that traditional finance doesn’t have. Thanks to automation and blockchain technology, decentralized finance projects have less overhead, more automation, lower fees, and no middlemen. Every transaction is as transparent as day and recorded on an immutable blockchain.
Plus, decentralized finance allows many more people to participate in wealth creation. Many people don’t have access to banks, stocks, or 401(k)s. Access to cryptocurrency allows them to invest, build wealth, and hedge against inflation.
Geopolitical factors often hamper people from investing in stocks. For example, if someone outside the U.S. wanted to invest in the S&P 500, they would have to deal with currency conversion rates, taxes, brokerage commissions, and clearing and exchange fees.
“Only a fraction of people know about decentralized finance,” said Heck. “Just like the internet, streaming services, or smartphones, this kind of technology will be slowly adopted over time. As adoption increases, so too will profits and technological advances. We’re on the verge of something spectacular.”