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Is DeFi Dead?

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Is DeFi Dead?

The crypto markets have survived some of the roughest economic conditions in a generation, with a global pandemic and record inflation crammed into three years. However, while 2021 saw new all-time highs for cryptocurrencies, as of June 2022, Bitcoin and the broader cryptocurrency market have been hammered. 

As a result, despite the growing adoption surrounding decentralized finance (DeFi), current market conditions and a lousy overall performance in 2021 are causing people to question if DeFi is dead. The following article will explore the health of the DeFi sector and see what’s in store next for this new financial movement. 

What Is DeFi?

DeFi is short for decentralized finance, an umbrella term for a variety of financial applications in blockchain positioned to disrupt financial intermediaries. 

In today’s financial world, financial institutions act as guarantors of transactions. This setup gives these institutions immense power because your money flows through them. The purpose of DeFi is to remove the control banks and institutions have over society’s money, financial services and financial products and make financial services more accessible regardless of who or where people are. DeFi has the potential to create more free, open and fair financial markets that are accessible to anyone with an internet connection. 

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How Does DeFi Work?

DeFi uses cryptocurrencies and smart contracts (programs stored on a blockchain that run when predetermined conditions are met) to provide services that don’t need intermediaries. These smart contracts are programmed to perform various functions in a permissionless manner. Transactions are executed after specific conditions are met, making these transactions easy to use and more efficient but also more susceptible to errors that can’t be fixed.

Users from anywhere in the world with an internet connection can lend, borrow and trade using peer-to-peer networks that verify and record financial actions in distributed financial databases. A distributed database is accessible across multiple locations, collecting and aggregating data from all users and using a consensus mechanism to verify it. 

Use Cases for DeFi

  • Obtaining a loan: Get a loan instantly without filling in paperwork, including extremely short-term flash loans that traditional institutions can’t provide.
  • Trading: Make peer-to-peer trades on certain crypto assets, eliminating the need for any kind of brokerage.
  • Lending: Lend out your crypto and earn interest and rewards every minute, not just once a month.
  • Saving: Put some of your crypto into savings accounts alternatives to earn superior interest rates to that which you’d typically get from a centralized bank.
  • Buying derivatives: Make long or short bets on crypto assets.
  • Stablecoins: Buy stablecoins that peg cryptocurrencies to an supposedly stable underlying asset such as the U.S. dollar, potentially providing a safe haven from the inherently volatile cryptocurrency market.

DeFi Performance in 2021

Despite rising adoption, the majority of DeFi blue chips had a lackluster year in terms of price action. This metric is interesting given that DeFi at the time saw its biggest year in terms of user adoption and growth in 2021.

Key Takeaways:

  • Despite sound fundamentals, DeFi blue chips underperformed Ethereum by over 110%.
  • The DeFi Pulse Index, a benchmark tracking the performance of 18 DeFi blue chips, retraced over 55% from the all-time high it made in 2021.
  • No blue-chip protocols outperformed Ethereum in 2021.

Best DeFi Crypto Projects

The DeFi sector of the global cryptocurrency market has thousands of coins. To allow you to navigate this vast space easily, a few of the best DeFi projects have been listed below:

Chainlink connects blockchains with the real world through a decentralized oracle service that can provide external data to smart contracts on Ethereum. By nature, blockchains don’t have an effective way to access external data – it’s difficult to connect off-chain data with on-chain data when using smart contracts. As a result, Chainlink plays an important role in enabling the majority of DeFi to leverage external data and operate correctly. 

An oracle is a piece of software that translates external data to a language that smart contracts can comprehend (and vice versa). The services Chainlink currently provides include price feeds, which are used by DeFi projects to secure billions in value; APIs to connect blockchains to off-chain resources (such as weather data for insurance); and smart contracts to perform audits verifying proof of reserves for stablecoins. 

LINK (the native token of the Chainlink network) is an ERC-20 token and is used to pay for the oracle service on the network.

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In mid-2021, the whitepaper for Chainlink 2.0 was launched, which delineates how Chainlink is positioned to capture the growing demand for decentralized oracles. Chainlink 2.0 will increase the services available to projects and allow stakeholders to build more advanced smart contracts that will enable DeFi to grow.

Uniswap

Uniswap is a DEX protocol built on Ethereum. To be more precise, it is an automated liquidity protocol. No order book or centralized entity is needed to make trades. Instead, Uniswap enables users to buy and sell cryptocurrencies among themselves in a trustless, highly decentralized and censorship-resistant manner. 

This goal is achieved through the use of a collection of liquidity pools. Liquidity providers contribute to Uniswap pools by locking assets into a smart contract, For example, Uniswap’s DAI/ETH liquidity pool consists of equal values of DAI and ETH deposits. 

In exchange for maintaining liquidity, providers are rewarded with a portion of the trading fees, along with newly minted UNI cryptocurrency. Liquidity is essential to Uniswap’s operations, as users sell and buy cryptocurrencies from the liquidity, swapping out one token for another. 

UNI is the native token of the Uniswap protocol, and it entitles holders to governance rights, which means that UNI holders can vote on changes or propose changes to the protocol.

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Uniswap v3

The technology behind Uniswap has seen multiple iterations so far. The most recent update for the protocol was Uniswap v3. One of the most significant changes with Uniswap v3 is related to capital efficiency. 

Like most automated market makers (AMMs), Uniswap was capital inefficient in the sense that most of the funds sitting in liquidity pools are not being used at a given moment. To combat this, liquidity providers can now set custom price ranges for which they want to provide liquidity. This change should lead to more concentrated liquidity in the price range that most trading activity happens. 

Aave

Aave is an Ethereum-based money market where users can lend and borrow a variety of digital assets, from stablecoins to altcoins. The Aave protocol is governed by AAVE (the native governance token of the Aave protocol) holders.

To be more precise, Aave is an algorithmic money market, meaning loans are obtained from pools instead of being individually matched to a lender. The interest rate fluctuates depending on the utilization rate of the assets in a pool. If almost all the assets in a pool are used, the interest rate will increase to entice liquidity providers to deposit more capital. Conversely, if few assets are used, the interest rate charged will crease to entice borrowing. 

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Aave also enables users to take loans out in a different cryptocurrency. Because of the inherent volatility of cryptocurrencies, Aave includes a liquidation process. If the collateral you provide falls under the collateralization ratio specified by the Aave protocol, your collateral may be liquidated. As a result, you need to understand the risks of depositing funds into Aave before using the protocol. 

Looking ahead, Aave plans to expand beyond money markets by allowing users to obtain flash loans. There is often much more liquidity in Aave’s money-market than loans required by borrowers. The underutilized capital can be used by those that take flash loans. Flash loans allow users to borrow a large amount of money without posting collateral, then return the loan within the same transaction. 

Pros and Cons of DeFi

Benefits of DeFi

  • Flexible: Users can move their assets anywhere at any time without asking for permission, paying expensive fees or waiting for long transfers to finish.
  • Pseudonymous: You don’t need to provide your legal name, email address or any personal information.
  • Open: DeFi is accessible; you don’t need to apply or open an account. You get access by creating a wallet.
  • Transparent: Everyone involved can see the full set of transactions. 

Drawbacks of DeFi

  • Scalability: DeFi projects encounter formidable difficulties in the scalability of the host blockchain.
  • Uncertainty: In the event of instability in a blockchain hosting a DeFi project, the project could automatically inherit instability from the host blockchain.
  • Concerns of liquidity: DeFi has far less liquidity than traditional financial systems.
  • Shared responsibility: DeFi projects do not take responsibility for your mistakes; without intermediaries, users have to take responsibility for their funds and assets.

What Is the Future of DeFi?

With Web3 on the horizon and sidechain and Layer 2 scaling solutions like Arbitrum, Optimism and ZK-Sync growing, DeFi projects on Ethereum should have ample opportunity to showcase their utility and make a strong comeback. Moreover, many blue chip DeFi projects such as Chainlink have proven to be oscillators in terms of their ETH trading pairs, meaning that as long as investors can weather the storm, a reversal should happen sometime in the future. 

The potential of DeFi is boundless, limited only by the imagination and execution of blockchain developers. A few growing trends to watch include: algorithmic stablecoins, synetic securities, self-repaying loans, the monetization of blockchain gaming, surging DEX and AMM volume and improved cross-chain technology.

Overall, while more people are using DeFi applications, it’s difficult to say whether DeFi will go mainstream any time soon. DeFi technology is experimental, new and isn’t without serious problems such as scalability. If developers can continue to rectify these problems, as exemplified by the impending Ethereum Merge, the potential behind this expansive financial ecosystem is boundless. If you want to take part, be sure to understand not only the rewards but the risks before getting started. 

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Albania To Start Taxing Crypto-Related Income From 2023

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Albania To Start Taxing Crypto-Related Income From 2023

Authorities in Albania are finalizing regulations that will allow the taxation of income and profits from cryptocurrency investments. The government intends to begin imposing the levy in 2023, after adopting the necessary legislation which has been proposed for public consultations.

Albania Set to Impose Crypto Tax as Early as Next Year

The Albanian state should begin collecting taxes on income from crypto assets as of 2023 in accordance with a new income tax bill, the local English-language portal Exit News reported on Friday. The government also hopes to pass a number of other laws and bylaws this year in order to comprehensively regulate the matter.

The special tax legislation is currently open for public consultations. It introduces the concept of taxing crypto holdings and income derived from virtual assets. The latter have been defined as “a digital representation of a value that can be deposited, traded or transferred in digital form, and that can be used for payment or investment purposes or as a medium of exchange, including but not limited to cryptocurrencies.”

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However, the definition does not cover central bank digital currencies (CBDCs), the report notes. That’s despite a growing number of monetary authorities around the world developing a digital version of their national fiats. The list includes major powers such as the United States, the European Union, China, and the Russian Federation.

The Albanian law also defines cryptocurrency mining as an activity using computing power to confirm transactions and gain virtual assets in exchange. The extraction of cryptocurrencies has been a grey area although law enforcement has been going after illegal mining facilities in the country and pressed charges against some of their operators.

Under the new legislation, any income from crypto transactions or mining will be classified as corporate income when it’s received as a result of business activity. And when the beneficiaries are private individuals, they will have to pay capital gains tax of 15%.

Financial Watchdog Tasked to Expand Crypto Regulatory Framework

Earlier this month, the Albanian parliament ordered the Financial Supervisory Authority (AFSA) to prepare and adopt new regulations regarding cryptocurrencies by the end of 2022. Albanian law allows crypto trading platforms to legally work in the country but no licensed entities are currently operating in Albania, Exit News remarked.

Two years ago, Albania also adopted a law titled “Financial markets based on distributed ledger technology.” While many have welcomed the legislation, critics have questioned whether the small nation in South East Europe, still an EU hopeful, is capable of properly regulating its crypto sector to prevent it from being used for money laundering, something it’s struggling to achieve in the fiat space.

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The legislature referenced a recent report by the Council of Europe’s Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism (Moneyval), which recommended additional steps regarding the risks associated with cryptocurrency. In November 2021, the AFSA approved its first two regulations implementing the crypto markets law, which introduced capital and licensing requirements for entities working with digital assets.

Do you expect Albania to adopt comprehensive regulations for its crypto space by the end of the year? Tell us in the comments section below.

Lubomir Tassev

Lubomir Tassev is a journalist from tech-savvy Eastern Europe who likes Hitchens’s quote: “Being a writer is what I am, rather than what I do.” Besides crypto, blockchain and fintech, international politics and economics are two other sources of inspiration.

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Image Credits: Shutterstock, Pixabay, Wiki Commons

Disclaimer: This article is for informational purposes only. It is not a direct offer or solicitation of an offer to buy or sell, or a recommendation or endorsement of any products, services, or companies. Bitcoin.com does not provide investment, tax, legal, or accounting advice. Neither the company nor the author is responsible, directly or indirectly, for any damage or loss caused or alleged to be caused by or in connection with the use of or reliance on any content, goods or services mentioned in this article.

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NHL enters the NFT space partnering with Marketplace Sweet

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NHL enters the NFT space partnering with Marketplace Sweet Abdulrasaq Ariwoola · 42 seconds ago · 1 min read

The NHL partnership with Sweet will offer a variety of digital collectible experiences to its fans, tradable in the marketplace

1 min read

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Updated: June 25, 2022 at 3:59 am

Cover art/illustration via CryptoSlate

👋 Want to work with us? CryptoSlate is hiring for a handful of positions!

The National Hockey League on Thursday announced its partnership with NFT Marketplace Sweet. This partnership will be the league’s first dive into digital collectibles.

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The partnership, of which the NHL’s players and Alumni’s association are part, will go live in October to mark the start of the 2022-2033 NHL season.

The NHL Marketplace

The NFT marketplace is expected to offer a range of experiences to NHL fans. Including digital collectibles that showcase historical moments, past and present season game highlights, and NHL stars top plays.

The marketplace will also feature gamified collection experiences, specialty packs, and 3D interactive trophy rooms where users can display their collections. Among these offerings there are also dynamic NFTs designed to change based on current team data.

Additionally, fans would be able to buy, sell, collect and trade the collectibles on the marketplace.

However, the announcement did not state which blockchain would host the marketplace.

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NFTs in the sporting space

The NHL  joins a long list of sporting institutions that have embraced digital collectibles.

In 2020, the NBA launched Top Shot NFTs, its digital collectibles marketplace, in partnership with DapperLabs. Likewise, the NFL launched its play and own NFT game while the MLB is to launch its NFT game soon.

However, the extreme sell-off in the crypto market has seen crypto companies pull out of sports deals. This is so as crypto companies strive to stay afloat as the severe sell-off continues in the market.

FTX recently pulled out of a partnership deal with Los Angeles Angels. Similarly, sources suggest a patch deal between NBA Washington Wizards and a crypto company has crashed.

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Japanese Virtual IP Firm Raises $10 Million To Accelerate Metaverse Business

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Japanese Virtual IP Firm Raises $10 Million To Accelerate Metaverse Business

Brave Group Inc., a Japanese virtual IP firm, recently said it had raised $10 million in new capital and that the company expects to use part of these funds to boost its “solution services for clients in the metaverse marketing business.” Taking part in Brave Group’s latest funding round were two local companies, foreign investment funds, as well as individual investors.

Metaverse Market Growth

A Japan-based virtual IP business, Brave Group Inc., recently said it had raised $10 million in new funding, thus bringing the total raised so far to $18 million. The company is set to use the new capital to strengthen its existing business operations and to “expand its solution services for clients in the metaverse marketing business.”

In a recent statement, Brave Group revealed that Japanese companies like Dawn Capital and Osaka Gas Co. Ltd. had participated in the round that also featured “foreign investment funds and individual investors.” In remarks following the announcement of the capital raise, Kazuhiro Ishikura, a general partner at Dawn Capital, said:

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As the boundary between real and virtual life disappears, the form of entertainment will also change, and new IP content KOLs are expected to be born. As the metaverse market grows globally, we believe that the Brave group’s content will be at the center of the enthusiastic virtual communities that will emerge. We hope that the strength of the anime and manga culture that Japan has cultivated over the years will be brought to the world virtually.

Yuichi Sakamoto, senior general manager with Osaka Gas’ innovation department, is quoted stating his company is ready to help Brave Group Inc. “realize lifestyles and businesses that respond to the New Normal.”

For his part, the CEO of Brave Group Inc., Keito Noguchi, said through the $10 million fundraise, his company would now “maximize the impact of Brave group’s IP not only in Japan but also in the world.”

What are your thoughts on this story? Let us know what you think in the comments section below.

Terence Zimwara

Terence Zimwara is a Zimbabwe award-winning journalist, author and writer. He has written extensively about the economic troubles of some African countries as well as how digital currencies can provide Africans with an escape route.

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Image Credits: Shutterstock, Pixabay, Wiki Commons

Disclaimer: This article is for informational purposes only. It is not a direct offer or solicitation of an offer to buy or sell, or a recommendation or endorsement of any products, services, or companies. Bitcoin.com does not provide investment, tax, legal, or accounting advice. Neither the company nor the author is responsible, directly or indirectly, for any damage or loss caused or alleged to be caused by or in connection with the use of or reliance on any content, goods or services mentioned in this article.

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