According to research, the total decentralized finance market is estimated at $58.31 billion at the time of writing. Statistically, this shows that the decentralized finance industry is expanding exponentially. And now, institutional investors are redirecting their attention towards DeFi.
Institutional Investors and DeFi
The mainstream adoption of DeFi solutions by institutional investors is responsible for the recent explosion in the DeFi space. Institutional investors like banks, professional traders, insurance companies and more, are now turning towards DeFi to seek high yields and eliminate expensive operational costs. Interestingly, DeFi protocols and applications are offering them similar services to traditional financial institutions but with enhanced security and profits to maximize their investments.
Decentralized Finance Industry
The decentralized finance industry is constantly expanding as it develops profitable DeFi products through smart contracts while also increasing transparency by enabling investors to view and track on-chain funds. The development of DeFi high-standard infrastructure is providing institutions with the opportunity to take part in a scalable market without intermediaries, custodians, or high infrastructural costs.
Big investors are strategically taking advantage of Defi unique solutions such as, access to the DeFi ecosystem with institutional trading features, trade flow efficiency, DeFi applications on secured infrastructures and yield farming with Ethereum 2.0 staking tokens to acquire higher returns.
DeFi Yield farming, also known as liquidity mining, is one of the incentive mechanisms used by the DeFi sector to lure in institutional players. In yield farming, different decentralized financial protocols are leveraged to reward liquidity providers with tokens that are worth more money than their initial investments. And this is one of the unique DeFi offerings that is facilitating the growing interest in digital assets. Here are some of the unconventional ways DeFi is gaining the attention of institutional investors.
Smart contracts
The global smart contracts market size is projected to reach $345.4 million by 2026, from $106.7 million in 2019. And the key factors triggering the growth of the smart contracts market size are the adoption of various applications in institutions such as supply chain, banking, insurance, and so on.
Smart contracts such as those on the Ethereum blockchain, are the backbone of all DeFi protocols and applications. They are able to store crypto assets and also function as custodians with full control over asset transactions.
Unlike traditional markets, decentralized finance does not depend on centralized institutions or intermediaries. Smart contracts help to build a more open, interoperable, and transparent financial market space. Furthermore, DeFi smart contracts have diverse applications in areas like borrowing and lending, safeguarding digital identity, P2P transactions, and more. With decentralized applications (dApp) based on smart contracts, institutional investors are able to build enterprise-based security and also efficient workflow processes.
DeFi is creating on-chain confidentiality solutions for institutions. The drive for increased privacy and scaling solutions has become some of the key drivers behind decentralized finance mainstream adoption. As a result of this, institutions are able to build new financial markets with flexible and customizable solutions based on the ethereum network.
With DeFi-based smart contracts, there will be improved security, traceability, and transparency of transactions, as well as low operational costs for institutional investors.
Non-Fungible Token (NFT) standards
According to research, trading volumes for NFTs on Ethereum netted more than $400 million in March of this year. The Non-fungible token (NFT) space is exploding with digital arts and collectibles. Recently, the NFT marketplace has emerged as the growth sector of crypto.
Non-Fungible Token use cases such as domain names, virtual real-estate, gaming, and arts are gaining the attention of diverse institutional players looking to invest in crypto. The Ethereum-based NFTs are offering investors access or ownership rights to unique programmable digital goods in the financial markets.
More so, the integration of NFT standards with decentralized finance projects has facilitated various new financial market infrastructures for various institutional investors plugging into the DeFi industry. Ultimately, this will lead to a big wave of increased returns for institutions in the space.
Distinctive Business Models
Decentralized finance is offering innovative business models that are creating profitable opportunities for investors to increase the value of their assets. Unique DeFi projects with interest-based applications are significantly disrupting traditional business processes as well as increasing the value of crypto holdings.
DeFi is creating high-standard operating models that are applied in financial services like liquidity and market making, on and off ramp transactions thereby exposing investors to new models for yield generation.
Conclusion
With DeFi innovative solutions, investors are sure to experience market efficiency and higher return on investments.
