Why DeFi? More importantly ask yourself why not! The vast majority of people are in Crypto to not only make money but to be in control of their assets.
When you store your funds on a centralised exchange, like Binance or Coinbase for example, your assets are not under your control (similar to traditional finance). The people deciding the risk strategies, what is lent or borrowed, or maybe worse leveraged, are only really accountable to themselves until it is too late.
In the worst case scenario, a collapse like FTX could cost the user their funds. Following some of the more high profile cases of centralised protocols collapsing in 2022, the industry saw a massive move away from centralised exchanges to in November and you can see that in the image below.
Remember - Your Keys, Your Coins
I personally see DeFi as a huge opportunity, it does not mean it is risk fee and you should only ever invest money you can afford to lose, in any investment. Why is DeFi so exciting for me?
All financial transactions are on a decentralised exchange and those transactions are controlled by smart contracts on the blockchain. Your funds stay in your wallets or you choose to add them to the exchanges liquidity pool.
The industry has moved away from promising impossible yields and are working on real yields (a lot are saying around the 5-10% mark), adding more trust to DeFi as an industry. In traditional finance it is very hard to sustain a 10% yield, in DeFi in early 2022 some people were promising close to 100% yields. This shows me the industry is maturing, it knows it's target market and how it wants to take market share.
JP Morgan made their first DeFi transaction on the Polygon chain in Nov 2022 (https://cointelegraph.com/news/jp-morgan-executes-first-defi-trade-on-public-blockchain).
More types of markets and better DEX functionality are being added to DeFi all the time.
A 76% shrink in TVL in 2022 is quite close to the shrink in total crypto Market Cap in 2022 and therefore not a huge worry for me.
I think DeFi is one of the reasons CBDC's will be hard to implement and that will encourage traditional financial institutions to look at stable coins within DeFi has genuine investment opportunities for themselves and their clients.
In my view, these stats from Nansen add weight to my opinions and thoughts above - https://www.nansen.ai/guides/defi-statistics-in-2022.
What Am I doing To Improve My Knowledge of DeFi?
I am an ambassador with Community Finance and Metavault Trade. I have been spending my time reading and watching video's about DeFi to build my knowledge over the last months.
We want to add more DeFi platforms to Polygon Alliance and build up educational resources alongside that to help people understand the benefits and the risks of DeFi. Learn more about Community Finance here.
Community Finance are a DeFi project in their launch phase and I will be helping them host AMA's on Twitter with other artists, projects and protocols.
Metavault Trade is a next generation spot and perpetual trading DEX. They have 6 large cap Tokens, 4 Stable Coins and multiple partners already. There are some more details in their graphic below.
They are growing from strength to strength and with the new features alongside an updated UI/UX coming in 2023, it will be an exciting year.
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To Summarise Where I Am At
I am definitely still in my learning phase of DeFi and as of now I have many more questions than answers. I am confident in the high level pro's and con's of DeFi v traditional finance and DEX's v CEX's.
Just like I am confident in blockchain technology. I have a better understanding of some of the functionality that is available and how that functionality can protect both platforms and users. As ever I intend to share my knowledge as I build it.
The Nansen stats above show that at the end of 2022 Ethereum had over 58% of all the DeFi liquidity. You may wonder why I think this is good for Polygon, especially with many other chains competing for the DeFi market. As mentioned above, JP Morgan made their first ever DeFi transaction on Polygon.
Polygon have focused on building partnerships outside of our industry. The next time a lot of people are in position to onboard to Crypto (hopefully the second half of 2023) then Polygon is a name they will likely be familiar with.
On a real base level, Polygon essentially speeds up Ethereum. The quicker Ethereum runs the quicker Polygon runs. When DeFi platforms want to use Chainlink oracles for their smart contract functionality, for functionality within things like Automated Market Makers (AMM's) to offer prices and make decisions, that speed will make a difference.
I have also seen Polygon supporting more DeFi projects and it seems like DeFi could be one of Polygon's priorities for 2023.
This article is not financial advice and like all of my content it is my opinions and thoughts.
