DeFi on the rise with record levels of Ethereum locked up
When the Bitcoin whitepaper was published a little over 11 years ago, it provided a possibility to free ourselves, at least partially, from our dependence on banks. And while the mother of crypto laid the groundwork, Ethereum is arguable the technology of choice that is delivering on this promise.
According to DeFi Pulse, the amount of Ethereum currently stored in decentralised finance (DeFi) apps has hit a new milestone of 2.7 million ETH, roughly amounting to around $420 million. While the overall crypto market ends the year at around half of the overall value achieved earlier this year, the value kept in decentralised finance apps has shown no sign of abating.
What is DeFi?
DeFi is a way of engaging finance using financial tools built on the blockchain. Ethereum is best known for this. These apps are primarily based on open-source protocols that enable developers to create and issue digital currencies, and because they are built on blockchain they provide an advantage over banks in terms of ownership, privacy, and efficiency. DeFi is sometimes referred to as open finance.
One example of decentralised finance comes in the form of decentralised exchange (DEX) or peer-to-peer networks for the transfer of value. In contrast to centralised exchanges (CEXs), when you trade on a DEX you hold custody over your own funds which means you hold ultimate control over your assets.
While DEXs are not (yet) as popular as CEXs due to their relative lack of liquidity they are nonetheless more in line with the founding principles of cryptocurrency as they maximise financial freedom and do not rely on third parties to manage user funds.
Stablecoins form another important part of the DeFi ecosystem. These types of coins, mostly pegged to the value of USD but increasingly also to other local currencies, are important as they form a bridge between fiat and crypto. Stablecoins effectively enable people to transfer money across borders easily, change between Bitcoin and tokenised local currencies (similar to forex trading), and make it simple for users to cash in and out of crypto.
What are some well-known DeFi apps?
One of the most successful DeFi apps is MakerDAO. Using ETH as collateral, users can create DAI, a USD-pegged stablecoin. Unlike traditional loans, users do not need a credit history or even a bank account. Anyone who holds Ethereum can generate DAI, which can then be used for leveraged trading, payments, or other economic acts.
Another important DeFi app is Compound Finance, a crypto lending venue. Unlike, say Bitfinex or OKex, Compound Finance does not hold custody over users’ funds but instead leverages smart contract-based markets where users can pool together loans for others to borrow.
Synthetix is another successful app in the decentralised space. This app allows traders to use cryptocurrency to speculate on assets such as gold, silver, and in the future perhaps even equities - all without leaving the crypto ecosystem.
Decentralised Finance with Bitspark
We’ve been committed to decentralised finance since we first started our operations in 2014. Bitspark now encompasses an entire ecosystem that includes a DEX, an app, and a suite of stablecoins, and over 500,000 cash points where you can exchange cash in your local currency for crypto and back.
One way in which people are benefiting from this platform is through our work with Okra Solar in The Philippines. Okra Solar has deployed a solar-power mini-grid for people’s energy needs and their customers can pay for their utility bills with the PHP stablecoin available in the Bitspark app. This is a solution for communities in off-grid locations as the majority of them do not have access to banking services.
Our Cash Points, which are user-generated, are essentially a form of decentralised finance. Anyone can open a Cash Point to start trading cash for crypto with Bitspark customers using the mobile app. Just recently we covered the story of a team that opened a Bitspark Cash Point in Australia both for people that just want to buy Bitcoin with AUD and for people who want to send money back home in a simpler and more efficient way.
The Bitspark mobile app is also proving useful for people who simply want to invest and spread risk. With the app, users can diversify their portfolio to include Bitcoin, Ether, BitShares, and stablecoins pegged to USD, HKD, SGD, AUD, PHP, GBP, EUR and many more.
We believe the future of finance is decentralised and over the coming years, as we see more wealth changing hands from older to younger generations, we can expect to see more and more capital flowing into these markets.