The founder of defi-related fintech Yield believes 2021 will be the year that decentralized finance (defi) becomes a “common term” in the financial industry, as the sector is now taking it seriously and building R&D labs.
The Financial Industry Is Now Taking Defi Seriously, Says Expert
During an interview with news.Bitcoin.com, Tim Frost, who also worked in the development and growth at early stages of crypto companies such as QTUM, NEO, Paxful, Polymath, among others, forecasted that in the next 12 months, the total value locked up will pass $100 billion in the defi industry. He added:
In 2021, defi will go through some cycles, but clear winners and value propositions will become clear and evident.
Defi platforms like Yield, which recently raised $3.4 million in funding from BnkToTheFuture, Alphabit Fund, amongst initial backers in a hybrid round, have been catching other firms’ attention to provide initial funding.
The also founding member of the digital banking platform, Wirex, said that there will always be speculation and inevitable inefficiencies as with any new financial market innovation. He believes these are more present in the context of cryptocurrencies and the peer-to-peer (P2P) nature of defi.
However, he continued to explain further why investors are interested in defi:
To some investors, these are risks that they don’t want to take. However, it can be considered that the ‘Risk-Adjusted Rate of Return’, the trade-off between risk and expected returns or the risk premium that an investor demands for investment participation in defi instruments, will naturally be measured against other mature income-generating financial instruments. We are seeing this today through the outsized returns (>1,000% APY) that can be achieved using complex liquidity mining strategies and re-hypothecation techniques.
On yield farming, Frost stated that it has “opened the eyes to many,” as it has brought a lot of attention to defi, “and while much of the current form that we know as yield farming will not last, the basic concept of providing liquidity and receiving returns for doing so is very sustainable and the core fundamentals of yield farming.”
Security in the Defi Industry
Defi industry has also been making the headlines in 2020 due to the security breach incidents over the year. Frost commented on if it represents a major weakness of defi nowadays, as he pointed out that people are often “in too much of a hurry” about this kind of topics:
To deploy safely any financial company, you must do complete technical and business due diligence. Many defi projects simply do not go through extensive analysis and scrutiny before they go live. Without proper procedures, the vulnerabilities are high and not safe to deploy capital. The defi industry must mature and put in better procedures.
According to research conducted by crypto exchange Crypto.com, surveying 29,574 of its users, mainly on NFT, 74% of the respondents admitted to having used Defi products.