Category: Blockchain

How to buy DeFi tokens in 2022

On By mehranmuslimiblogIn Blockchain, DeFiLeave a comment

How to buy DeFi tokens in 2022

DeFi offers multiple investment opportunities, but as with all crypto there are risks. Jordan Finneseth offers us three ways to analyse the DeFi tokens on offer, together with their protocols.

As he says, “There’s more to investing than just technical analysis and gut feelings.” Since decentralised finance projects burst onto the scene, we have seen some blockchain analysis platforms appear with the aim of providing better insights into the “fundamentals supporting a cryptocurrency project” and these offer us three ways to evaluate them.

  1. Check the community and developer activity

Looking at this is one of the most basic ways to begin your evaluation. Many of the top protocols in the space offer analytics that track the growth in active users over time. For example, you should look for the average number of active wallets on a daily, weekly and monthly basis. Investors should also look at the number of transactions and volumes transacted on the protocol, as well as sentiment about the project on social media channels, such as Twitter. Information about developer activity is available on GitHub.

  • Look for increases in total value locked (TVL)

The overall strength of a project may be revealed in the sum of all assets deposited on the protocol, otherwise known as the total value locked (TVL). Growth in the TVL shows that momentum and interest in the project are increasing. Tools you can use to look at this are DeFi Llama and DappRadar, which allow users to dive deeper into the data and look at the statistics for different blockchain networks, such as Ethereum, and on individual projects.

  • Identify the majority token holders

Another factor to consider are the benefits given to a project’s token holders for their activity. Finneseth says, “Investors should also look into the manner in which the token was launched and who the dominant token holders currently are.” He also warns, “caution is warranted when excessive yields are offered for low liquidity, anonymously-run protocols with little community activity because this can be the perfect setup for catastrophic losses.” This is what is referred to as a ‘rug pull’ in DeFi speak. Also, look at the number of tokens allocated to the developers and founders vs. the tokens held by the community as this could be an indicator of a platform that could fall victim to a rug pull.

And that is a basic guide to buying DeFi tokens. Season’s Greetings to my readers, and wishing you all a healthy, happy and prosperous 2022.

DeFi will fuel a new Roaring Twenties

On By mehranmuslimiblogIn Blockchain, DeFi, UncategorizedLeave a comment

The DeFi boom started in 2015 when the Ethereum network went live, and since then it has grown by 33x to 1.2 million per day on the Ethereum blockchain alone, and it would be even bigger if other chains were added to this figure.

The current DeFi sector “represents only 0.1% of its maximum potential,” writes Artem Tolkachev. As he says, “DeFi is a natural product made possible by blockchain technology and has the right and ready infrastructure to propel the technology to a bigger playing field.”

What has contributed to DeFi growth?

The answer is the use of DeFi services such as Uniswap, which facilitates over $1 billion swaps each day, as well as lending and borrowing protocols such as Aave, Compound and BondAppetit. Combined they form a market worth tens of billions.

The TradFi (traditional finance) market is of course much bigger at trillions of dollars, and currently DeFi can’t offer the same extensive list of services as TradFi. At the moment, DeFi is mostly confined to lending, borrowing, decentralized trading and yield-aggregating, but it also has the advantage of playing an important role in the future of NFTs and in Web 3.0, otherwise known as the Metaverse.

The key to DeFi growth

The TradFi market is ripe for disruption, writes Tolkachev, and that is where DeFi can excel. For example, consumer payments are worth $500 billion per year in revenue for banks worldwide, but this could be tapped into with a frictionless UI, a global stablecoin and broad acceptance points.

And in capital markets, security tokens are an inevitable trend that regulators will eventually need to approve and construct the regulatory framework so that centralized and decentralized exchanges – at least the ones that adhere to the know-your-customer (KYC) requirement — can tap into the trillion-dollar TradFi equity market.

There is also the 1 billion plus daily global credit card transactions to be captured, and even moving 1% of them onto the Ethereum blockchain, or another of the DeFi-friendly smart contract blockchains, would multiply the number of its transactions by eight.

And there is the revenue from DeFi protocols. At the moment this is estimated to have a value of $5 billion annually, which is a fraction of the $2.3 trillion global retail banking revenue; $2 trillion global cross-border payment revenue and $35 billion global stock exchange revenue. Tolkachev says, “The TradFi industry is so lucrative that seizing a 1% market share means 10x-ing the DeFi revenue.”

Furthermore, it is estimated that DeFi has not really yet penetrated the general crypto user market, with only 5% of the 221 million global crypto users accessing DeFi services, revealing a massive untapped market for DeFi that can be captured as the UI/UX is improved.

DeFi is only three years old, so it needs to be given time to grow. The DeFi builder community has grown stronger in 2021 with more programmers from the traditional startups and big tech joining the blockchain and DeFi scene. Tolkachev says, “with the resources and talent flowing into the space now, growing 100x in the next 5 years is not a dream, it is inevitable.”

NFTs and DeFi are the keys to a functioning Metaverse

On By mehranmuslimiblogIn Blockchain, DeFi, Metaverse, NFTsLeave a comment

When Facebook announced it was investing $10 billion in the development of a ‘Metaverse’, a platform based on augmented and virtual realities, the term suddenly started appearing in multiple headlines. However, Facebook didn’t invent it: the term first appeared in Snow Crash, a 1992 sci-fi novel by Neal Stephenson. In the book humans interact with each other and with software agents, such as avatars, in a three-dimensional space that acts as a metaphor for the real world. It might have been fiction 30 years ago, but now it’s fast becoming a reality.

What is the ‘Metaverse’?

Broadly speaking, the technologies that make up the metaverse can include virtual reality—characterized by persistent 3-D virtual worlds that continue to exist even when you’re not playing—as well as augmented reality that combines aspects of the digital and physical worlds.

Metaverses, in some limited form, have already been implemented in video games, such as Second Life and Fortnite. It is also a digital economy, where users can create, buy, and sell goods. 

It’s all about Web 3.0

Nobody knows yet exactly what Web 3.0 will be like eventually, but we do know that it will allow individuals to use the Internet without giving up their privacy and valuable personal data. The downside of Web 2.0, which is where we are now, was that users were providing the companies that controlled platforms, such as Facebook, with personal information and data. This contributed significantly to the platforms’ profits, as they sold this data to third parties without the knowledge or agreement of users.

Web 3.0 would remove this theft, as many see it, because it will be made possible by decentralised networks, such as those of Bitcoin and Ethereum. In this system no single entity controls a platform, yet we will be able to trust them because every user and operator on the network must follow a series of hard-coded ‘consensus protocols’. Blockchains with smart contracts, such as Ethereum, EOS and Tron, are leading the way in building this new iteration of the Web.

But Web 3.0 has even more innovations to offer. The networks will allow ‘money’ or ‘value’ to be transferred between accounts. Furthermore, as Decrypt points out, “On Web 3 money is native. Instead of having to rely on the traditional financial networks that are tied to governments and restricted by borders, money on Web 3 is instant, global, and permissionless. “

NFTs are the key to accessing the metaverse

Non-fungible tokens (NFTs) will be critical to making the vision of integrating the digital and physical world by giving a unique identity to avatars or digital items, writes lawyer Michael Tomasulo. He goes on to say: “For example, an NFT-supported avatar would be comprised of all the user’s prior digital interactions and experiences (effectively reflecting their digital “life”) and possessing all the digital items the user has accumulated (which would themselves be backed by NFTs). In effect, NFTs give users and items an “identity” within a virtual space that is completely independent from a developer’s control of the code.”

Due to the explosion of interest in art-based NFTs, there is likely some confusion over their potential use. Chief amongst their potential is NFT-controlled access to the metaverse. In the future world of Web 3.0 all the processes and protocols will coalesce into a central, interoperable space offering finance, communications, game worlds and much more. Crucially, NFTs in the form of real life identities tied to a digital avatar, are one way to access this metaverse world. As Decrypt says, “In time, the metaverse may even develop an independent state of its own, presided over by various DAOs.” (A DAO is a dentralised autonomous organisation).

And in terms of DeFi (decentralised finance), peer-to-peer lending and trading, could take on the role of a virtual financial system while NFTs represent our keys, ID cards, and passports.

The marriage of DeFi and NFTs

It’s important to remember that all NFTs are unique and can’t be swapped/traded or replaced with another NFT of equivalent value. This makes an NFT an illiquid asset, meaning that finding a seller or buyer would be harder compared to traditional cryptocurrencies.

Romi Kumar at Hackernoon points out that although we have seen a meteoric rise in the NFT Market, clocking over 2000% in just a little over a year, the segment still remains highly illiquid. He suggests that problems in the NFT sector may be solved by combining NFTs with DeFi applications (Dapps) and that those working on this have seen “results that are truly splendid.”

Suppose you bought an NFT at a price of 2 ETH during a specific period when that NFT was popular. A year later you decide to sell it, but your NFT is now unfashionable, and you struggle to find a buyer, let alone make a profit. The problem is that you can’t exchange it for anything else because it’s non-fungible, whereas ETH or BTC can be exchanged for fiat currency or products, because they are fungible.

DeFi can solve this NFT problem. With Defi in play, NFT owners can fractionalise the asset so more than one person can own fractions of it. Furthermore, it will create a liquid environment for NFTs because you can use fractional selling.

For example on Werewolf, a DeFi platform with Dapps, including yield farming, a decentralised exchange (DEX) and a blockchain game, users can access a dedicated NFT marketplace. Here there is an auction system and a raffle-style competition pool. An NFT holder can start a competition, deciding the minimal entry price, minimum and maximum number of entrants, and a period to run the pool. The seller sells the NFT faster, and the winner only has to pay a fraction of what the NFT was worth.

While many may still see NFTs as a passing fad, industry leaders have realised that incorporating blockchain technology with NFTs for integration into the Metaverse is the missing piece in the creation of a ‘Functional Metaverse’. This is one where the way people interact with and transcend the digital world, merges with the real world. And DeFi will play a central role in making that fully functioning Metaverse happen.

Thinking about crypto as money

On By mehranmuslimiblogIn Bitcoin, Blockchain, crypto, EconomyLeave a comment

There are a number of people in the financial world who make derisory remarks about cryptocurrencies ever becoming accepted as ‘real money’. Their arguments point to its volatility, which they say makes it impossible “for cryptocurrencies to serve what traditional economics describes as the three functions of money: 1) a medium of exchange, 2) a store of value, and 3) a unit of account,” as Michael J. Casey writes at Coindesk.

Casey suggests that this argument doesn’t work if “the three functions framework is based on a flawed, or overly narrow, definition of money.” He points us towards a book by Felix Martin ‘Money: The Unauthorized Biography’, in which the author says that historically people have had a flawed view of money as a “thing”, i.e. a banknote, but he says that it is really “a socially invented governance system for tracking transfers of property and clearing debt in a commonly trusted manner.” Martin believes we have “fetishized” money as something to be owned and accumulated, rather than seeing it as a means to an end.

In Martin’s view a nationally accepted currency, such as the dollar, is merely a tool that makes it easier to carry out transactions “across a community of otherwise untrusting strangers.” Casey says this makes cash similar to a decentralized, peer-to-peer record-keeping device. Still, it is difficult to challenge the dominant thinking about national currencies, which are effectively a system of social organization and control in sovereign states. But is this the only way to think about money?

Cryptocurrrencies do challenge the sovereign state narrative about money, simply because they are “censorship-resistant, geography-agnostic value transfer systems.” They provide rules and a framework of trust for users without needing to draw their authority from governments, although as Casey mentions, crypto users still have to follow the laws of their governments around cryptocurrencies.

Casey also argues that while some see Bitcoin as a replacement for the dollar, there is a bigger picture to consider, and that is the potential of digital assets to dispense with the need for universal common currencies altogether. As he correctly says, we are a long way from that happening. However, if interoperability protocols and transaction processing can be scaled in a properly decentralized manner, allowing cross-chain atomic swaps in mass numbers without having to trust intermediaries, something like a global system of fractionalized digital value exchange could be realised.

According to Casey, central banks in Singapore and the United Arab Emirates are already exploring interoperability solutions for their central bank digital currencies (CBDCs). This is a move that threatens the status of the dollar as the world’s reserve currency. If this happens, crypto could become a universal unit of account. Casey concludes by pointing out that if the dollar’s role is diminished then “the role of bitcoin, ether, NFTs and other digital assets could increase.” And how we think about money will have changed as well.