Private finance is taking crypto mainstream

Last year was a turning point for cryptocurrencies. It turned blockchain from being a space for geeks into one where governments, institutions and retail traders now had a seat at the table. The 2021 GameStop story also played a major role in a change of perception.

Most interestingly, as Alex Shipp explains in an article for Cointelegraph, “cryptography and its primary feature, privacy, have been relegated from the front-and-center role they once played as cryptocurrency’s main attractions.” This has been replaced by the enticements of DeFi apps that offer “enhanced liquidity, yield farming and unprecedented economic models.”

Will 2021 be DeFi’s big year?

DeFI has become the Shangri-La of cryptocurrency it seems. Its allure is pervasive across the cryptocurrency landscape, with investors enchanted by its “double-digit APRs and seamless user experience,” which holds better long-term prospects for them than the “subtle, systemic benefits conferred by a privacy-centric exchange.”

Privacy is no longer the primary reason for entering the crypto space. Moreover, as the perceived benefits of DeFi grow, consumers are more than happy to make trade-offs to keep it growing. They really don’t want to forfeit these for the sake of privacy.

DeFi is the current Disruptor-in-chief within an already disruptive community. Now we can expect another to emerge – PriFi, or Private Finance. This, says Shipp, “brings privacy back on-stage by bringing it back on-chain — that is, into the Ethereum and Polkadot ecosystems — to integrate privacy into a robust network of rapidly evolving applications of decentralized finance.”

It’s significant because until now, “privacy solutions have remained siloed on standalone, privacy-oriented blockchains, isolated from the ever-expanding features of the DeFi landscape.” This ‘movement’ wants users to be able to have access to privacy without any trade-offs. Shipp says it could not have come at a more critical moment. Why?

The answer is GameStop. I won’t reprise the story, because I’m sure you know it. However, one critical factor is that after the hedge funds got caught over-leveraged in short positions, centralized companies, such as Robinhood, Charles Schwab, TD Ameritrade and others, restricted trading “thereby protecting the remaining capital of the exposed funds.”

This caused outrage amongst the retail investors, because these companies had essential hung them out to dry. What they learnt was, as Shipp says, “For retailers in 2021, that has meant awakening to a pair of sobering realizations: that centralized markets only remain free as long as they serve centralized powers and that surveillance is a primary supporting feature employed by such power structures.”

The trading restrictions placed on the retail traders highlighted the need for “a new line of emergent derivatives: fully private, on-chain synthetic assets whose values are securely pegged to traditional financial instruments — stocks, commodities, bonds, insurance products and more.”

The crypto space is opening up in ways the first enthusiasts probably never dreamt of, and while it may not suit purists, it is driven by the demands of the market. You could say everything has changed, and nothing has changed – depending on your perception.