The world is currently undergoing a financial market turmoil, with inflation on the rise and stock prices taking a plunge in recent months. While this shock has been felt across the board, Web 3.0 innovators are still building financial products of the future. Most notably, the nascent Decentralized Finance (DeFi) market is now an area of interest for both crypto and traditional finance investors.
As it stands, the total value locked (TVL) in DeFi protocols is well over $70 billion, although the figure has dropped from an all-time high of $250 billion at the peak of the bull market in November 2021. What’s more interesting, however, is that amidst all the chaos this upcoming ecosystem has proven to be more resilient than most people would have expected. The DeFi trend is not only attracting crypto natives but established businesses as well.
“Since its inception, DeFi – literally decentralized finance or blockchain-based forms of finance that do not rely on centralized intermediaries such as banks – has been adopted to some extent by smaller businesses in developing markets whose needs are unmet by the traditional banking system.” noted a report by the World Economic Forum (WeF).
Decentralized Markets; A New Era of Finance
For the past century, traditional markets have operated based on centralized infrastructures where regulatory authorities and mainstream financial institutions call the shots. Well, the tide is gradually changing, with investors questioning whether banks execute their functions to the advantage of the clients. On several occasions, these centralized intermediaries have been accused of manipulating market conditions to align with their interests.
What if we had a market ecosystem that is controlled by multiple contributors instead of a third party? That brings us to the value proposition of DeFi; a new market paradigm designed to bring back control to the participants; in simpler terms, DeFi products are built on permissionless and transparent infrastructures hosted on the blockchain. This means that anyone can access the DeFi market and trustlessly verify on-chain executions hence their decentralized nature.
Though still in the developmental stages, a couple of DeFi innovations that currently exist have shown that the world would be better off with decentralized markets. For instance, DeFi lending and borrowing platforms like Compound and Aave rely on pre-coded smart contract conditions to provide automated lending and borrowing services. Even better, there are some upcoming Decentralized Exchanges (DeXs) such as SOMA.finance that have gone the extra mile to offer SEC and FINRA regulated crypto products, including tokenized equities, ETFs, NFTs and STOs.
Another industry that is embracing the potential in DeFi infrastructures is the gambling market. Today, it is possible to place a wager through a decentralized betting application like Lunabets (hosted on the LunaFi protocol). Unlike traditional casinos, the Lunabets ecosystem leverages smart contract infrastructure to ensure trustless payouts, bringing the much needed transparency to the gambling industry.
Moving away from financial products, artists are also joining the decentralized markets wave. This can be seen in the growth of the Non-fungible token (NFT) ecosystem and the metaverse over the past year. According to the latest analysis, NFTs recorded over $25 billion in sales in 2021, with digital artists such as Beeple cashing big on their collections. Above all, the metaverse has become a darling of traditional tech giants, including Meta and Microsoft.
“When we talk about the metaverse, we’re describing both a new platform and a new application type, similar to how we talked about the web and websites in the early ’90s,” said Microsoft’s CEO Satya Nadella in a keynote address.
Looking at the ongoing financial markets crisis, it is quite evident that investors are no longer safe at the hands of bankers and investment firms. The masses need a financial ecosystem of their own, a market that is controlled by the people and accessible to all. What better way to deliver this vision than DeFi products?
While it may take some time before we resume an uptrend, DeFi will certainly feature in the next era of financial innovations. No wonder regulators across the world are playing catch up. Furthermore, signs on the wall show that investors are ready to move away from the centralized toxic culture that has always favoured institutions, leaving investors with little to show from their savings.