The year 2020 was described as the year of Decentralized Finance or DeFi as it’s commonly called, but is that still the case?
There has been a steady decline in the value of DeFi protocols and gradually the excitement that came with the DeFi boom is beginning to fade away. Can this decline be linked to certain factors or it’s just a healthy market cycle? Lets take a look at certain factors that may be responsible:
1. Rug pulls:
when I invested in my first DeFi protocol I never knew I would subsequently be a victim of this dreaded term by DeFi enthusiasts “rug pull”. I have been a victim of so many DeFi rug pulls and eventually this made me cautious of any DeFi protocol.
I have seen DeFi protocols in partnership with established Blockchain start-ups pull the rug. I have also seen DeFi protocols with locked liquidity pull the rug. This has made so many DeFi enthusiasts apprehensive and cautious of investing in DeFi protocols.
A majority of DeFi enthusiasts have decided to call the stop loss function by liquidating most of their DeFi investments to avoid losing everything, sadly I am a victim here.
Presently I have been exploring the possibility of liquidating my remaining DeFi investments despite being down over 80% in my portfolio. There’s this saying that half bread is better than none lol.
Rug pull has become very prevalent in the DeFi space. Recently $YAU developer pulled the rug and was advertising the car he would buy with the ETH he stole from the DeFi protocol investors in the project’s telegram channel lol. Imagine how insensitive people can be?
This issue of rug pulling is an important factor that has contributed to the steady decline and possible loss of interest for DeFi protocols. It is better to invest in centralized finance and get 10% in a year than hear promises of more than 1000% in a year and end up losing everything.
2. United States elections:
The United States elections has also contributed to the overall direction of the DeFi and cryptocurrency market as a whole. Uncertainties about stimulus package by President Trump sparked a sell off in DeFi protocols this week.
Economists and financial researchers have predicted that the bear market trend will continue till after the United States elections.
3. Normal market cycles:
There’s a saying that what goes up must come down, this saying holds water in the financial markets. After every bull cycle there’s always a period where people take profits.
In my opinion, there is actually no point of investing if you can’t get returns on your investments. So this may just be a period where people are taking out the returns from their investments in DeFi protocols or it could be the start of a general cryptocurrency bear market after experiencing a bull run.
4. Coronavirus Virus:
One cannot underestimate the effect of corona virus on the world economies and financial markets. Covid19 has grounded world economies and bringing uncertainties to financial markets with DeFi affected as well.
Crypto enthusiasts saw the pandemic as an opportunity for the decentralized financial industry to rise and show it’s full potentials but this hasn’t really been the case.
Although people are embracing alternative ways of accessing financial products and services like DeFi lending, DeFi payments, DeFi savings, yield farming, staking, etc.
With the recent resurgence of the corona virus and no vaccine at sight, people are just thinking of surviving first on a day to day basis and being able to afford their essentials. This has contributed to the massive sell-offs in DeFi protocols.
5. DeFi hype is over:
The cryptocurrency market has proven to be driven not by products or services but pure hype. This has been the case of past crypto experiments like ICOs, IEOs, Bitconnect, deflationary tokens, etc.
The success of all these were driven by hype. Social media has played a very important role in driving awareness and creating hype for crypto experiments. You can remember how TikTok pumped Doge lol. This is what hype has been doing to the crypto industry over the years of which DeFi is presently a beneficiary.
Now the hype around DeFi seems to be dying down and people are pushing for NFTs as the next hype. Recently someone purchased an NFT based artwork called Block 21 created by Ben Gentilli for $131,250 at Christie’s auction on October 7th.
The hype surrounding DeFi seems to be over and now is time for DeFi protocols to live up to expectations by streamlining what DeFi really means and what it has to offer. This is the time to develop innovative solutions and products that will disrupt the financial sector.
Looking at past cryptocurrency experiments they didn’t fail but what these past crypto experiments like ICOs, IEOs, Bitconnect and deflationary tokens did was after the hype was over. They provided an innovative framework for subsequent cryptocurrency experiments to build on.
Today DeFi protocols:
- Organizes presales which are like ICOs and IEOs.
- Offer lending services like Bitconnect.
- Build DApps and DEXs.