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The Defi Industry: Current examinations and issues learned from participating in a 30 day Hackathon

The Defi Industry: Current examinations and issues learned from participating in a 30 day Hackathon

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The Defi Industry: Current examinations and issues learned from participating in a 30 day Hackathon

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Defi (decentralized finance) is a rebranding reboot of the crypto industry using web 3 protocols. Today more developers are working in the industry than ever before. Hackathon.money had over 120 products submitted and hundreds of developers worldwide coming up with new inventions. It was exciting to see so many involved from just one event. This shows that there is interest and it will be exciting to see what involves from 2020. 

 

But all is not a rosy picture. The current industry sector that is taking shape does have it’s issues though. 

 

In this article, we will dive into issues the Defi industry faces. 


 

Loan applications are making the most money

 

From the success of Compound, many developers in the space are looking to build layers on this financial instrument. So how does it work in Defi?

 

Let's say an individual wants to request a loan of 50 ETH. How it works is the individual must already have a savings of 50 ETH. They then stake this amount as collateral to the lender. With interest accruing, if you can’t pay back the loan, your stacked 50 ETH goes to the person that lent you 50 additional ETH.

So why take a loan you may ask when you’re giving up the same capital you already hold?

Well, the reason people are currently doing this has to do with speculation. An individual basically turned their 50 ETH into 100 ETH with the notion the market will trend up. Thus if ETH goes up, you double your expected earnings by having double the money. The more people that do it, can also increase the value of the market.

Why is this concerning?

 

If we hadn’t learned from the 2018 crypto bubble, then this might be our rude awakening. This approach to finance attracts those of us who are gamblers. Allowing people to lend, lend, lend while the market goes up, up, up. This is an example of a bubble in the making. Eventually, this will pop making way for a small minority of victors and a large majority of losers. What’s even more surprising, industry builders have to be knowing they are doing this. It almost seems the trend is, “a bubble can make me rich.”  

 

Luckily this is only one segment in the industry, but unfortunately, it’s where a lot of money is currently being made.

 

Lots of tools taking the place as middlemen

 

The banking industry is looking eerily similar to the Defi industry. The original point of cryptocurrencies had to do with the peer-to-peer nature. It’s like handing a dollar electronically like you would do in person. You basically cut out the middleman. Third party players involved in the banking sector have a “job” in the network for when the money is moved. Thus why there are so many middlemen taking their cuts. Unfortunately this trend is now being replicated in Defi.

Defi tools currently allow for a faster smoother implementation process in order to build web 3 protocols. However, these tools cost money. Some of the first businesses in Defi created tools to allow Dapp developers to build on their infrastructure. And of course a lot of these tools' revenue model is selling to Dapp projects B2B. This looks oddly similar to payment gateways taking their cut and other 3rd parties that work in the banking sector. Even worse, some tools charge you depending how many users sign up. This looks to be one of the causes that is hindering the use case development of Dapps to go mainstream. 

 

Not all is doom and gloom though. We expect the industry to learn and developers begin trends to use free open source tools instead. In addition, we eventually will realize these loan models in crypto can't last forever. The hope is it won’t take us to another crypto winter to realize it. 


 

Now for some questions.

 

Are we correct on our assessment? Or is there somewhere we might have been wrong? 

Have any of you participated in any loaning applications in Defi? 

What trends do you see that are positive in Defi?

 

Thanks! Look forward to reading the comments





19 COMMENTS 81 VOTES

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SI desea aprender a ejecutar aplicaciones en Windows PC o Mac. descargar

5 days ago

5 days ago

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6 days ago

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6 days ago

I have no plan to loan and am currently not an investor here but would like to start investing after reading this

1 week ago

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1 week ago

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2 weeks ago

Murat Arpacı senior

Thanks for the article.
I did not apply for a loan in DeFi. But I am investing in DeFi tokens.

As you said, even if there is a balloon, I am trying to make money from this new venture.

2 weeks ago

Karen M guru

Hi Murat, are you having much success in Defi investments?

1 week ago

Murat Arpacı senior

Hi Karen;
I have just started trading the DeFi tokens. It is doing very well for now. I buy if the price goes down. I also sell when it rises more than 10%. It rises in 2-3 days. For now it is doing fine. I just feel sorry for selling sometimes :)

6 days ago

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Karen M guru

Glad it's going well for you. I don't think you need to feel sorry. Selling is part of trading and the goal is to make a profit.

6 days ago

Murat Arpacı senior

Absolutely correct, thanks :)

5 days ago

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2 weeks ago

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2 weeks ago

De Gem guru

Cryptocurrency enthusiast, avid reader, rapper and SDG advocate.

Are we correct on our assessment?

Yes, you are. After every bubble, the burst surely comes and the rebuild follows. We'll surely get there. How soon enough I don't really know. On the issue of middlemen (or in this case "middle-dapps" as I call them), I'd be very happy if the crypto world or blockchain universe could do away with them as soon as possible. They're the reason for exorbitant transaction fees. Unfortunately, the system behind this is designed such that sometimes you don't realize this is going on.

Or is there somewhere we might have been wrong? 

I read today on decrypt.com that Ethereum DeFi apps are struggling to keep up with surging demand. This news can mean two things. The first is that the DeFi industry has a long way to go and might just be getting started with its bubble. The second which is in sync with what we're discussing is that such a demand might prompt the creation of sub-standard or even quack DeFi apps which might lead to a crash in the long run (similar to what happened with a lot of crypto projects in 2018). I support the latter. But considering the first possibility, you could be wrong.

Have any of you participated in any loaning applications in Defi?

Personally no. I've looked at a few though; Bitbond (one of the most authentic DeFi platforms I know of and who've been around for a while), ThoreNext (which also controls Thorecoin and ThoreCash) and Salt (which seems to have performed poorly since the crypto bubble burst of 2018)

What trends do you see that are positive in Defi?

I see a lot of people defying government protocols put in place to restrict them from getting access to certain amounts of monies in the near future. Money being made accessible to the commoner who couldn't otherwise have had it. I see DeFi collapsing banks at its peak and more creative and ingenious uses of DeFi popping up in the future that will definitely stay with the world populace. Am I crazy?

 

 

2 weeks ago

lk

2 weeks ago

Karen M guru

Great explanation about Defi. I was vaguely familiar with it and you helped to give me a better understanding (I think). I'm sure someone will correct me if I'm wrong  It seems similar to 'timing the market' in stocks, which is very risky. You have to be on top of things to buy/sell at the right moment. This is not something I have ever done and I would not try. I just don't take that much risk with my money- although, if you're good at it, it can be very profitable. I actually, have not borrowed money in a long time and I hope I don't need to.

2 weeks ago

I have participated in loaning applications in defi, and i have read all of your post. There arent any mistakes in your assesment that i could think of. Everything said is correct. 

2 weeks ago