As Bitcoin price stagnates, defi markets doubles

  • Ever since the large jump in Bitcoin price at the end of April from 7.6k to 9.3k, bitcoin has gone sideways for much of the past 2 months, failing to break the 10k mark on multiple occasions yet finding strong support at the 8.5k and 9k levels.

    While most holders of bitcoin understand that the price doesn’t always go up in a straight line and are willing to hold on to bitcoin and ride through the uncertainty, some bitcoin holders are looking for alternative areas that can allow them to continue growing their wealth.

    While many traders and investors have tried to look for the “next bitcoin” among many of the promising crypto projects, the truth is that an overwhelming majority of these crypto startups don’t fulfil their promised potential. Deloitte found in 2017 that 90% of the 26,000 blockchain projects launched the previous year had become idle. It’s almost akin to finding a needle in a haystack. Others have tried technical trading, and the results are mixed at best, and should you use a centralized exchange, you expose yourself to additional custodian risks.

    The safer alternative to generating returns would be to go into the Defi lending space. This entails converting your bitcoin to Ethereum based platforms and lending out your funds. Few notable platforms for lending out are MakerDAO and Compound. In doing so, there are risks involved as well such as platform risks and risks that the smart contracts that run these platforms have bugs and can be hacked.

    These are risks that you have to accept should you want to get higher returns and you should only be willing to risk money that you are willing to lose.

    Going into the defi markets has become increasingly popular as the total value locked in defi contracts has doubled from 800 million to 1.6 billion over the same period of end April to the start of July according to Total value locked (TVL) is one of the more important metrics that measure the growth of the defi lending space. This shows that there is growing confidence in the defi space to eventually take over traditional financial markets. Defi yield farmers have largely been drawn to this space because of the relatively stable and secure way to earn returns without being exposed to the risks of picking the right crypto company to invest in. This could be similar to how bonds are generally safer than buying stocks.

    I believe that the defi lending space will continue to grow and has the potential to replace traditional retail banks due to the transparent and efficient manner that uses algorithms to disburse loans rather than through human labour. This is perhaps the next financial revolution that the world is about to face.

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