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What is DeFi? Why is encryption accelerating?

DeFi ignited the cryptocurrency market in the summer of 2020, creating a new era. In fact, due to its high liquidity, expensive assets and high mining yield, DeFi flourished during the Federal Reserve's massive easing. In particular, it was in the winter of encryption in the last year that the market realized that DeFi, which is completely located in the blockchain and extremely transparent, may be the answer to the innovation dilemma of non compliant financial institutions. So that DeFi and TradFi merged this year, many traditional financial institutions entered the field to take advantage of potential opportunities.

Now, the cryptocurrency community is building a new financial infrastructure from scratch. For the first time in hundreds of years, barter economy has become meaningful again: human beings can conduct transactions and exchange value in a point-to-point manner without relying on third parties. However, this time, as directed by DeFi, there are no boundaries or constraints. For example, DeFi projects in the past three years have generated more financing than the entire banking industry in the past 25 years

In particular, the ecosystem has more than 30 million users, and the network effect is strong. The innovation level of DeFi composability is amazing. The fact that cryptocurrency and DeFi run on a transparent and open network and have open source code makes them almost unstoppable.

In addition, DeFi has broken the corporate barriers between institutions and created unprecedented capital efficiency potential.

The future of finance: details of encryption and DeFi forecasts in 2023

First of all, there is a question about whether DeFi Summer 2.0 is possible for the encrypted 2023. Of course, the UX Cup in 2023 will be better. This means that if we see the DeFi protocol tested, strengthened and improved in 2022, with a more fluent user experience, powerful use cases, and DeFi applications that are easier to use than home banking applications, we are likely to see how users can join in the next year.

Other updates, such as EIP-4337, will also bring account abstraction and more user-friendly wallets to protect privacy, while EIP-4844 will bring better scalability and make a step towards more scalable L2 and the edge of Ethereum. In addition, it is expected that retail encrypted wallets will experience explosive growth. As a result of the integration of large social media companies, in general, the public is also increasingly aware of digital wallets.

NFT and institutions enter DeFi

The potential new user base for encryption and NFT is now very large. In fact, as of November 2022, nearly 80 million encrypted wallets have been created, and about 5 million wallets have interacted with DeFi, accounting for about 6% of the total number of wallets. Considering the potential large-scale adoption of the crypto wallet and the ease of use of the DeFi platform, we can see that the adoption of DeFi has accelerated in almost the past year.

In addition, in the DeFi forecast, there must be a goal of releasing billions of dollars of liquidity from DeFi NFT. Although on the one hand NFT may be seen as a threat to cryptocurrency adoption, the intersection of NFT and DeFi may be the general trend in 2023. At present, NFT market is a multi billion dollar market, and DeFi can be used to release its liquidity. This market is an important part of NFT financialization, which can help accelerate the tokenization of real assets as irreplaceable tokens.

Similarly, we will see ETH recurse to DeFi in 2023. That is, Ethereum Merge and EIP1559 have established recursive attributes for DeFi polynomials and their relationships with assets. DeFi protocol is one of the largest users and payers in the Ethereum chain. At the same time, ETH and assets based on Ethereum and L2 are the main resources used in DeFi. This can amplify the value of the entire ecosystem and increase the value of DeFi use cases.

Finally, we may see real institutions adopting encryption. 2023 will also be a year when traditional finance will increasingly participate in DeFi. In fact, the existing infrastructure allows institutions to interact with DeFi applications while still meeting compliance requirements.

For the initial problem, we can say that market participants are waiting for favorable macro conditions to participate in volatile assets, such as assets in cryptocurrency and DeFi. If the economy shows obvious signs of recovery in 2023, DeFi related tokens, projects and TVL may perform much better than all other asset classes.

ending

DeFi has shown the potential to subvert the financial industry. In fact, two years after its establishment, DeFi's TVL has grown to a scale comparable to that of a large and medium-sized bank in the United States. Therefore, there is no doubt that the user growth is as fast as that of Neobank. In addition, the year-on-year growth rate of wallet last year was 100%. Maintaining this growth rate, DeFi will become the "top ten banks" within two years.