DeFi’s May: Cloudy with some Sun

On By mehranmuslimiblogIn DeFiLeave a comment

May 2022 is a month best forgotten in the world of DeFi, and crypto generally. The Total Value Locked (TVL) across the sector plummeted more than 40% in the month to $111.4B, according to data from DeFi Llama.

This swift decline was mostly caused by the collapse of Terra and its UST stablecoin. The upshot was $28 billion lost from the markets in May, and Ethereum lost $40 billion. The ‘alternative to Ethereum’ Layer 1 protocols offering cheaper smart contracts also declined in terms of TVL: Avalanche lost $5 billion, and Binanace Smart Chain dropped by $3 billion. 

Any protocol associated with stablecoins was hard hit, due to UST’s demise. Investors jumped ship from several, including Curve. This decentralized exchange was designed to facilitate efficient stablecoin trading. However, it lost its position as the largest DeFi protocol by cross-chain TVL amid the downturn, with its TVL crashing by more than 50% in one month. As it currently stands, Curve’s TVL is $8.9 billion, which is a long way from its January record of $24 billion. Convex, a protocol that offers additional rewards to Curve liquidity providers, also lost close to half of its TVL in May. It now ranks in sixth place with $5.3 billion in liquidity, slumping from its number two position in January with a  TVL of $21 billion.

Tron defies the trend

On the other hand, Justin Sun’s Tron network has bucked the trend. Tron’s TVL is up 43% in the last two weeks and it is now the third-largest smart contract network, according to DeFi Llama. The bulk of its growth can be attributed to the network’s leading protocol, JustLend, which has grown 65% during the month. JustLend’s $2.95 billion TVL represents 49% of the value locked on Tron, and positions the protocol as the ninth-largest overall.

Tron’s USDD stablecoin

Tron’s stablecoin is the USDD. According to recent tweets, the total supply of USDD surpassed $600 million within the first month of launching. It is an algorithmic stablecoin on TRC20. The success of USDD has partly contributed to the rise in Tron’s TVL. And on 28th May, Justin Sun, the founder of Tron, has been tweeting that a big announcement for USDD is coming next week.

Before the Terra crisis, UST’s success prompted new entrants to explore stablecoins on the crypto market. TRON released the USDD stablecoin on 5th May and has since attracted industry attention. The stablecoin is meant to reward arbitrageurs to keep its price closely pegged to that of the U.S. dollar by trading between TRX, TRON’s token and USDD, sharing similarities with Terra’s UST, both being algorithmic. This doesn’t appear to have deterred investors. USDD is currently ranked 73rd in terms of market capitalization, according to CoinMarketCap data, with a market cap of $603 million.

USDD is currently ranked 73rd in terms of market capitalization, according to CoinMarketCap data, with a market cap of $603 million.

Young investors keep the faith with crypto

On By mehranmuslimiblogIn Bitcoin, Blockchain, cryptoLeave a comment

Those investors who arrived recently to crypto investing are feeling anxious, especially if they bought in during 2021 when Bitcoin and Ethereum were reaching dizzy all time highs. Since then the market has dropped by around 50%. Market commentators worried that new retail investors might be lost forever because of this. Eben Burr, president of Toews Asset Management told Reuters, “If the market decline continues, it will become too painful and retail investors will bail.” However, that doesn’t appear to be the case, especially with the youngest retail investors.

According to Callie Cox, investment analyst at eToro in the USA, the current correction hasn’t deterred the younger investors: “We surveyed 1,000 investors across age groups in March, and 58% of investors ages 18–34 thought Bitcoin would present the best buying opportunity in crypto over the next three months.”

This is surprising, given that Glassnode reported that in May 40% of Bitcoin holders were underwater on their investments at a time when BTC was $33,800. So, are younger investors still as optimistic as they were in March? Bobby Zagotta, CEO of Bitstamp USA, said, “Retail traders between 35-45 years old decreased their crypto balances amid market volatility in the last few weeks. By contrast, our younger users seem to be more bullish and have chosen not to sell.” 

Younger people are more optimistic

Is this because younger people are generally more optimistic? A 2021 research study on crypto investors’ beliefs, found that “younger individuals with lower income are more optimistic about the future value of cryptocurrencies, as are late investors.” Cristina Guglielmetti, financial adviser and president of Future Perfect Planning discussed first-time retail investors with Cointelegraph, saying: “The clients I have who own cryptocurrency haven’t really sold their holdings from last year to this year. They’re looking at it more as an educational experience and not assigning an expected return per se. They’re expecting it to be speculative and very volatile.”

Another question on some minds is whether the market can attract new investors. Bobby Zagotta said, “Headlines might have you believe that there’s more volatility than there really is and that investors are fleeing when prices fluctuate. But, that’s not really happening.” Etoro’s Cox added that 42%  percent of investors surveyed by eToro in March said they don’t buy crypto because they simply don’t know enough about it: “But, the appetite for decentralization and digital transformation is still there, especially among younger investors.” She believes the reason for this is “younger investors naturally have higher risk appetites, and they’ve seemed willing to stomach these swings because of their longer-term optimism about the technology.” Ultimately, Cox says, “We haven’t seen investors abandon the crypto space en masse, but we have seen them become more selective of what crypto they buy.”

Who loves the Metaverse?

On By mehranmuslimiblogIn Metaverse, UncategorizedLeave a comment

According to a survey conducted for the World Economic Forum (WEF), and currently meeting in Davos, excitement over the emergence of the Metaverse and virtual or augmented reality (VR/AR) is much greater in developing countries than in high-income countries.

The survey conducted by Ipsos, a well-known market research firm, showed that recognition of what the Metaverse is has increased with 52% of more than 21,000 adults surveyed across 29 countries saying they are familiar with it, and 50% have positive feelings about engaging with it in daily life.

The countries where people have the most positive feelings towards it are China, India, Peru, Saudi Arabia, and Colombia. In these countries two-thirds or more of respondents said they had positive feelings towards it. China is the most enthusiastic with 78% having positive feelings toward using a Metaverse daily, followed by India at 75%.

On the other side of the coin, the world’s high-income countries showed a more negative response to it. Japan scored the lowest with just 22% exhibiting positive feelings followed by the United Kingdom (26%), Belgium (30%), Canada (30%), France (31%), and Germany (31%). It was also interesting to note that people surveyed in these countries had much less understanding of the concept of the Metaverse, with fewer than 30% in France, Belgium and Germany having a good grasp of it.

Of those who knew most about it, Turkey was most familiar with the Metaverse at 86%, followed by India (80%), China (73%), but also the higher income country of South Korea (71%). 

And which countries thought the Metaverse could make a positive contribution to life, and to which areas of life? Developing countries such as South Africa, China and India agreed areas like virtual learning, entertainment, and even applications like remote surgery would make an impact on people’s lives. Again respondents from high income Japan, Belgium and France had the lowest percentages of those who agreed that Metaverse applications would significantly change people’s lives.

No doubt there are many conclusions to be drawn from this survey, particularly about why developing economies are more pro-Metaverse than those who lead the world table in terms of their economies. Is the answer something as simple as they see the Metaverse as offering hope, opportunities and more when you live in a weaker economy?

DeFi set to transform lending market

On By mehranmuslimiblogIn DeFi, Smart ContractsLeave a comment

One of the most popular features of decentralized finance (DeFi) is lending. It is fair to say that this feature is expanding to take a significant share of global financial lending space simply because it is easy to use and removes the barriers to accessing loans in the traditional financial system.

Bank loans are not available to everyone

Lending and borrowing are one of the core offerings of the traditional financial system, and most people are familiar with the terms in the form of mortgages, student loans, etc. These are usually granted by banks, which take measures to minimize the risks associated with providing a loan by conducting background checks such as Know Your Customer and credit scores before a loan is approved. It’s a system that is closed to those who cannot pass the banks’ requirements.

The role of smart contracts

DeFi, by contrast, is a system where lending and borrowing can be conducted in a decentralized manner wherein the parties involved in a transaction can deal directly with each other without an intermediary or a financial institution. That’s because DeFi uses smart contracts.

Crypto as loan collateral

A bank will not accept your crypto as collateral for a loan, whereas crypto is central to DeFi platforms. Users can deposit their coins into a DeFi protocol smart contract and become a lender – or a borrower. Usually, the loans are over-collateralized to account for unexpected expenses and risks associated with decentralized financing.

Choosing a DeFi platform for lending or borrowing

The best way to assess which DeFi platform is best for lending or borrowing is by looking at its TVL – total value locked. TVL is a measure of the assets staked in smart contracts and is an important indicator used to evaluate the adoption scale of DeFi protocols as the higher the TVL, the more secure the protocol becomes. The TVL in DeFi protocols has grown by over 1,000% from just $18 billion in January 2021 to over $110 billion in May 2022. One of the best sources for checking TVLs is https://defillama.com/

Perhaps most importantly, the transparency provided by DeFi platforms is unmatched by any traditional financial institution. These platforms also allow permissionless access, signifying that any user with a crypto wallet can access services from any part of the world. Although you’ll need to check each platform, as some DeFi services are not available in certain jurisdictions, e.g. a European platform may not give access to US citizens, and vice versa.