- Institutional investors are requesting more access to DeFi protocols to increase their revenue potential.
- Increased adherence to DeFi benefits the entire decentralized financial ecosystem as it increases the capital inflow.
- To reach mass adoption, DeFi needs to follow the same trends portrayed in traditional finance.
- Staking has gained popularity in the past 12 months, whilst before it didn’t interest institutional investors.
The DeFi summer of 2020 produced the “most prominent trend” of the modern blockchain era. DeFi allows all financial products to be recreated on the blockchain, eliminating the middleman by entrusting participants and leveraging smart contracts.
Financial instruments are quickly evolving, and their applications are gaining traction among avid corporate and angel investors, as “banks should be scared” of DeFi’s potential. DeFi recreates the financial sphere and also generates higher interest for network participants, thus increasing the incentives for participation.
DeFi Puts Blockchain on the Financial Map
In an interview with DailyCoin, Henrik Gebbing, co-founder and co-CEO of Finoa, illustrated why the future of finance lies with DeFi and the byproducts derived from disruptive innovations. In his view, DeFi offers more benefits to investors and participants than current financial operations.
"At the same time, this was also kind of the next product now, right, which I said; it also has this new generation."
The shift to a new consensus mechanism opened up opportunities for additional revenue streams. Gebbing highlighted that investors can use lending or staking to diversify out from asset appreciation, thereby enriching the financial rewards for retail and institutional investors.
Rather than purchasing and holding, investors have a
"significant additional investment opportunity and yield generation opportunity"
through the institutionally inclining service provided by Finoa.
Staking as a New Financial Pathway
Proof of stake was always on the cards; even Etehereum projected an imminent shift through Casper protocol. DeFi has helped raise awareness of these new financial opportunities through staking. Additionally, as emphasized by Gebbing, institutional investors want to “diversify their portfolio because they’re always looking for yield opportunities and return,” which are advantages offered by staking or yielding.
"12-18 months ago, most of the market participants didn't really understand, or didn't care about so much, because it was a niche kind of functionality that is now absolutely at the top of mind for the users."
Crypto financial custodian services can increase user’s profit margins by offering staking services, which do not require adherence to third-party applications. In Gebbing’s view, investors seeking new ways to increase their profits also benefit the entire ecosystem as it increases blockchain stability through participation.
DeFi is slowly creeping into the mainstream. According to DeFiPulse, the TVL of DeFi is at $54 billion across the network. Furthermore, the TVL only reached $1 billion in June 2020; The market has shown an exponential increase as more capital has flowed into the network. Gebbing expressed a similar outlook:
"We see that, from the customer requests that we get, DeFi and decentralized lending is kind of the next thing that our customers are asking for."
On the Flipside
- Lack of regulation and distrust in cryptocurrencies from high capital investors is keeping DeFi from reaching its potential.
- The TVL decreased as Bitcoin lost price momentum, demonstrating how DeFi is directly related to the success of the crypto market
- High network fees were DeFi’s first bottleneck, which would not have impacted high capital investors.
- Despite the lower transaction fees on the Ethereum network, DeFi usage has not increased.
A Healthy Step Forward
To reach the maturity enjoyed by the centralized financial market, DeFi needs to follow similar progressions of adding collaterals to increase asset liquidity. Investors’ recognition of DeFi can increase collaterals if the security of their assets is guaranteed, and a healthy ROI would be generated.
Gebbing argues that “staking is a beautiful mechanism” as it puts one’s asset into productivity. However, investor perspectives are changing as they come to terms with what is possible with DeFi and blockchain, and new protocols will continue to reshape how decentralized finance can empower higher participation by increasing investors rewards.