Industry players asserted that decentralized accounts (DeFi) may see a more significant premium from singular clients and institutional speculators, as this early area’s current circumstance is as yet good in 2021. Meanwhile, guidelines may hinder this extension.
“It appears to me that 2021 will be a year of enlightenment regarding cryptocurrency,” Bo Oney, Chief of Compliance of Bitcoin ATM Network Coinsource, stated. “As the appeal of DeFi grows, you will see adoption and utility permeating as the main trends throughout 2021.”
The macroeconomic trends of low and even negative interest rates globally will mean that DeFi will be increasingly relevant to people, argued Monica Singer, the South African Lead for Ethereum (ETH)-focused major blockchain company Consensys, and not just to “the tech and financial nerds.” Another trend Singer sees picking up steam in 2021 is institutional money and professional traders increasingly wanting exposure to DeFi.
Adding that the key challenges will be education and simplifying the user experience, she sated that
“As long as the legacy finance world keeps breaking, people will be pushed in our direction,”
Meantime, according to Will Liu, Head of decentralized data marketplace SAGA, DeFi passed the dramatic growing stage at the end of 2020. In 2021, it will be “a more standardized and easy-to-use form” and “a nice option for individual investors for a long time.”
While DeFi is still in its nascent phase, stated Konstantin Richter, CEO and Founder of Blockdaemon, sure growing signs indicate that it’s beginning to enter a stage of maturation. Therefore, a “particular area of interest will be whether the DeFi space can follow the lead of the crypto market and attract greater institutional investment,” he stated.
Institutional adoption of crypto has proven to be a significant driver for adoption by retail users. If DeFi can “mature and manage to attract similar mainstream investment, there are likely to be huge opportunities for early adopters of the technology in the coming year.”
Anthony Lauriola also stated that DeFi would begin to define itself in 2021, with more industry players likely incorporating some element of DeFi into their existing offerings. “[Last] year DeFi established itself but [this] year, DeFi will likely see steady adoption” as it matures. “Currently, DeFi has a lot of potentials to make common financial processes like lending, borrowing, and earning interest more accessible to emerging markets,” he stated.
Ilia Maksimenka, Founder of digital payment platform PlasmaPay, argued that, while big news in 2020, DeFi’s “overnight success story has been years in the making.” The wider industry began to notice it and understand its potential in 2020. “Now that the genie is out of the bottle we expect the sector to rapidly grow in strength [this] year,” stated Maksimenka. He added that the coronavirus pandemic had accelerated the move to a more decentralized world.
Hybrid models and coexistence
Moreover, Erick Pinos, Americas Ecosystem Lead at Ontology, argued that “trends in the blockchain and crypto industries in 2021 are likely to be anchored around the growing demands of the decentralized finance space.” DeFi will continue to stay prominent throughout this year, stated Pinos, adding that “a leading factor of what is popular in crypto is the opportunity for companies and users to make money.” He stated:
“With decentralized exchanges, lending, insurance, derivatives, mutual funds, and more, the opportunities to make money in DeFi are endless. Thus, most transaction volume and product development over [this] year will likely continue being centered around DeFi.”
“DeFi will continue to iterate at a rapid pace,” argued David Moss, Founder & CEO of StrongBlock. While 2020 was a year of experimentation, “there’s enough of a firmly established set of what works now that, in 2021, we’re going to start seeing hybrid ‘DeFi plus’ models of DeFi with consumer and enterprise components,” while governance will start to become more critical as well.
As DeFi’s craze last summer was “just a glimpse of what is to come,” Jack O’Holleran, CEO and Co-Founder of SKALE, added, “we’ll see DeFi grow into more mature use cases.” We will likely see a 10X rise in the current Total Value Locked (over USD 15bn) and more specifically in Total Value Staked across proof-of-stake networks, he stated.
Nevertheless, as the DeFi boom continues on its upward momentum, what will be crucial this year is whether it can “stake its claim in the realm of traditional finance and coexist with traditional banking institutions for a more integrated and open financial ecosystem,” argued Amrit Kumar, President and Chief Scientific Officer of blockchain platform Zilliqa.
He added that “building a comprehensive ecosystem for applications and enterprises alike will be key as DeFi continues to further cement its place in the finance space.”
Meantime, Philippe Bekhazi, CEO of stablecoin platform Stablehouse, added that 2021 would be a seminal year for already established protocols, while Jonathan Zerah, Head of Marketing at private messaging application Status.IM, finds that this year, DeFi will shift from borrowing and lending over to transacting.
Regulating DeFi ‘cowboys’
Most of the industry insiders we talked to agree on are that regulation is inevitable – it will be challenging and beneficial, some argue.
Even though DeFi is “completely outside of the regulated financial system […] the laws on the books of governments still apply,” according to Brian Gallagher, Head of Business Development at Partisia Blockchain.
Once comprehensive regulation comes to DeFi, “processes in the industry will likely slow, which will be a significant challenge, argued Rachid Ajaja, CEO and Founder of AllianceBlock.
While DeFi will be one of the most important drivers behind the industry in 2021, he stated, this year will also “likely see a large focus on regulation and compliance that facilitates bridging the worlds of traditional and decentralized finance,” which will present “a significant and arguably the biggest opportunity in the field.”
Monica Singer also stated that eventually, there would have to be regulation of those products that could bring risk to investors who aren’t knowledgeable. “I hope that we can see innovation that will not be arrested by regulation too soon,” she stated.
Meantime, tech entrepreneur Andrew Kessler announced that he doesn’t think regulators will accept DeFi offerings in their current form, but that we’ll see “evolution and adaptation as regulators respond to more high-risk type asset classes.” Kessler added that he expects to see other hype cycles in 2021, particularly in the DeFi space.
Philippe Bekhazi claimed that DeFi would “evolve from a very immature and cowboy-like market to a more responsible one,” at least for the already established DeFi protocols, noting that a “flurry of new protocols” is expected. The more regulatory pressure there is on centralized finance via KYC (know your customer) / AML (anti-money laundering) and other measures, the more DeFi will benefit, concluded Bekhazi.
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