Tag: crypto

The Battle Between TradFi and DeFi

On By mehranmuslimiblogIn UncategorizedLeave a comment
Heap of dollar bills eyeglasses and Bitcoin coins. Cryptocurrency analyzing concept

You may have seen numerous articles about decentralized finance (DeFi) and its claims that it will radically change the traditional finance (TradFi) sector. DeFi supporters state that there is a core need for an open, transparent, and secure financial system, and that TradFi simply doesn’t provide that. Essentially, DeFi positions itself as an alternative to the banking system we currently have.

One of the arguments for DeFi is that because it is a blockchain-based concept, it is outside of governmental and regulatory control. This has a strong appeal to those who are concerned about what we have learnt about personal data collection by commercial entities and governments.

DeFi answers the desire for data security and privacy. It also “leverages a set of progressive, agile tools to give control to users,” according to Stably. It also offers features that traditional finance can’t provide, and this makes it an attractive alternative to the current system.

But what are the real differences between DeFi and TradFi? There are three key differences:

  1. In DeFi the public blockchain is the source of trust, whereas in TradFi it is regulatory bodies that are the source of trust.
  2. DeFi is gaining traction because it is open and transparent, and there are fewer barriers to accessing it. The opposite is true of TradFi, especially in terms of the barriers to access, which leaves billions of people unbanked worldwide.
  3. TradFi has its hands tied by regulatory forces, which makes it extremely difficult for its institutions to act with the same agility as DeFi projects.

DeFi’s use cases

There are also three strong use cases for DeFi.

1. Banking

Unlike TradFi, DeFi projects are able to offer banking without borders. TradFi struggles with this, and as mentioned before, this has left billions globally without a banking service. DeFi’s use of blockchain technology overcomes that issue and allows people in developing countries and rmote areas with access to banking via their mobile phone.

2. Circumventing oppressive governments

Oppressive governments are prone to issuing bans and restrictions on financial movement. TradFi can’t offer solutions, but again, because DeFi uses the blockchain and associated tools, it is able to circumvent government restrictions and provide uncensored global financial services.

  • Creative finance

There is a level of creativity in DeFi projects in terms of developing new features and functions. In the past TradFi had a monopoly on financial products, but even those products associated with TradFi can be moved over onto the blockchain, giving DeFi another advantage.

Challenges to overcome

Naturally, while DeFi has advantages, it doesn’t have a clear home run. It also faces challenges.  The biggest one is not hard to identify, and you don’t need to even ask an expert: it is getting the general public to trust the idea of unregulated open-source code. Cryptocurrency doesn’t yet have mass adoption and there is widespread mistrust of it, which bleeds over into the DeFi sector by association. There are fears about hacks amongst other things. Indeed, the DeFi tech is still in its infancy, with much work to be done to make it more trustworthy for a wider audience beyond DeFi fans.

Ultimately, DeFi has a way to go, but it undoubtedly has potential, and certainly as a way to give more people access to banking services. If its works hard on scalability, security and liquidity, it has a real opportunity to replace TradFi.

NFT Creators: Finding Fans and Making Money

On By mehranmuslimiblogIn UncategorizedLeave a comment

“To make a living as a craftsperson, photographer, musician, designer, author, animator, app maker,entrepreneur, or inventor you need only thousands of true fans.” Kevin Kelly

Any artist relies on having fans, and having a large swathe of diehard fans, ready to buy whatever you produce, is a goal most would love to achieve. Back in 2008, Kevin Kelly wrote an essay on how the Internet would make this more achievable for artists in any discipline, simply because it opened up a global audience. However, while creative people waited for fans with spending power to arrive, the online took a slightly different direction to the one they hoped for.

Social media platforms, all of them centralized, was seen as a great way to connect with fans. Throw up a Facebook page, promote your work, and fans would find you. It did work, for a while, but then the SM platforms spotted an opportunity, you could say, a trick they were missing, and
started using algorithms that decided what fans saw, changing the relationship between them and the artists. What’s more, the SM platforms were keeping a lot of the revenue they gleaned for themselves.

The Tide Is Turning

Now that tide is turning and returning to Kelly’s vision, and NFTs have proved to be the vehicles for change. That’s because non-fungible tokens enable artists to sell directly to fans without a third party taking a cut. It’s true that many will continue to use centralized social media platforms for promotion and to connect with fans, but the advent of NFTs
and a crypto=based economy is giving them other options to make money.

But, it’s not that easy to understand what NFTs are. Just ask a person in the street. The chances are that you might find one or two that know what an NFT is, while others might have an idea they are connected to Bitcoin, while others will never have heard of them. Those inside the crypto community might be surprised that a new sector that has such a big
buzz around it, and one where a lot of money is being invested, has had so
little impact on the wider public. But then the same could be said of
cryptocurrencies.

A Better Economic Environment For Artists

However, the lack of public engagement with NFTs is not an insurmountable issue. The NFT craze is in its infancy, which
means it has a way to go to mature, and as it evolves and expands, the size of the audience will grow as well. In this respect, NFTs are still a profitable
venture for creators. After all, NFT sales were valued at $2 billion in the
first quarter of 2021, according to Cloudwards.net.

First, NFTs are created on a blockchain.
This also means that even the owner of an NFT marketplace cannot charge
whatever they want for an NFT, because the artist is in control. Of course, the marketplaces will get a fee, and that creates a competitive environment for the creators who will look for those offering a strong sales performance and lower fees, or other incentives.

Second, NFTs allow for more finely tuned pricing tiers. For example, the hugely popular NBA Top Shots cards can be bought for thousands of dollars, or a few dollars. The same can be seen in CryptoPunks, Bored Apes, and any of the other series.

The third way in which NFTs help artists make more money is in the relationship with the user. Unlike buying say a painting at auction, where the auctioneer takes a fee from both buyer and seller, the person who buys an NFT pays very little to acquire a work. That’s because of the crypto factor! There’s very little marketing spend in the crypto market, and neither Bitcoin nor Ethereum has marketing budgets, yet millions of people own them. The same applies to NFT projects. Chris Dixon points out
that the NBA Top Shots cards, “generated $200M in gross sales within a
month while spending very little on marketing.” That’s because sales are significantly based on peer-to-peer marketing, which in turn is boosted by the community of fans that flock to collectible NFTs, and generate excitement about them. Plus,there is a feeling amongst these fans, who are also owners, that they have skin in the game, and the game has a real buzz.

There are still many ways for creators to build a fan base via NFTs, and boost their finances without the interference of intermediaries. Those platforms that impose distribution and monetization on creators are likely to find that they are challenged. Artists now have more choices, and as Chris Dixon says, when crypto and NFTs offer a new way to make money, that is probably the choice artists will take.

Dazzled by some insanely high APYs?

On By mehranmuslimiblogIn UncategorizedLeave a comment

Have you noticed that a significant number of DeFi projects are offering insanely high annual percentage yields (APY), which, of course, look very attractive to investors, especially retail investors, who are those most at risk.

There are DeFi protocols that have been built using the proof-of-stake (PoS) consensus protocol offering eye-watering returns to their investors in return for them staking their native tokens. But, as most of us know, sometimes by getting burnt ourselves, if something sounds too good to be true, then it probably is.

The issue is that some projects are nothing more than cash grab schemes. Shiraz Jagati at Cointelegraph gives the example of YieldZard, a project positioning itself as a DeFi innovation-focused company with an auto-staking protocol, which claims to offer a fixed APY of 918,757% to its clients. Who finds that believable? All you would need to invest is $1000 to gain a return of $9,187,570! And YieldZard isn’t the only project offering fast and high payouts.

Assessing an APY

How can you as an investor assess the sustainability of projects like this? Here is some advice from Kia Mosayeri, product manager at Balancer Labs — a DeFi automated market-making protocol. “Sophisticated investors will want to look for the source of the yield, its sustainability and capacity. A yield that is driven from sound economical value, such as interest paid for borrowing capital or percentage fees paid for trading, would be rather more sustainable and scalable than yield that comes from arbitrary token emissions.”

Ran Hammer, vice president of business development for public blockchain infrastructure at Orbs, pointed to the fact that DeFi offers a another major innovation to the crypto ecosystem: the ability to earn yield on what is more or less passive holding. But as he says, not all yields are equal by design because some yields are rooted in “real” revenue, while others are the result of high emissions based on Ponzi-like tokenomics.

Understand the source of the ‘yield’

Ultimately, it is very important for investors to understand where the yield is coming from. For example, transaction fees in exchange for computing power, trading fees on liquidity, a premium for options or insurance and interest on loans are all “real yields.” Whereas those that are based on token inflation may turn out to be less sustainable, as there is no real economic value funding these rewards. 

So, if you see a dazzling APY offered, you should consider all of the above, as well as the fact that most returns are paid in cryptocurrencies, and since most cryptocurrencies are volatile, (just look at the market this week!) the assets lent to earn such unrealistic APYs can decrease in value over time, leading to major losses. 

Are crypto exchanges poised for a growth explosion?

On By mehranmuslimiblogIn Bitcoin, cryptoLeave a comment

What will the financial sector look like in 2030 after spending the decade challenging the incumbent financial services? Leeor Shimron, a Forbes Contributor, believes that crypto exchanges are poised to capture the growth in this space.

To date, crypto exchanges have provided users with a first contact point with an ever-increasing range of crypto assets. Lets’ not forget that the first crypto enthusiasts were retail investors who for the first time were able to access a new asset class before the institutional investors. As a result, most exchanges, such as Coinbase and Binance, were set up to service demand from the retail investor. For example, as Shimron remarks, “In just 8 years, Coinbase propelled crypto to the mainstream serving over 30 million users.”

Follow the Internet’s history

There have been several commentators who have suggested that the crypto story is very similar to the emergence of the Internet. The Internet was a fundamentally disruptive and paradigm shifting technology, and crypto very well may exhibit similar changes, mimicking the growth in Internet usage.

Illustrating this claim, Shimron cites the statistics: “User adoption of the internet reached 10% of American households in 1995, five years after the first web browser was launched. User adoption reached 50% in the U.S. by the year 2000.” Currently, US adoption of crypto is at around 5%, and hasn’t seen the same rate of adoption as the Internet. This is caused by “issues of scalability, privacy, and ease of use,” something that the Internet also had to overcome.

However, if Bitcoin’s growth story follows that of the Internet, it should achieve user adoption of between 20–50% by the year 2030.

Crypto exchange growth

Shimron applies a similar metric to exchange growth. He writes, “To project future exchange growth in the U.S., I assumed 5% user adoption of crypto in the US currently and calculated revenue growth if user adoption reaches 10% (conservative case), 20% (base case), and 50% (optimistic case) in the year 2029.”

The resulting scenarios for 2029 in terms of exchange revenues are: “$1.9 billion in the conservative case, $3.8 billion in the base case, and $9.6 billion in the optimistic case.”

He also remarks that although the 50% adoption may seem far-fetched, there are indicators supporting it, including ample growth potential amongst retail investors and demographic changes over the next decade, with more 18–39 year olds living in cities and being more familiar with digital technologies and virtual goods. These millennials will also inherit $68 trillion from the baby boomer generation by 2030, and they are looking for new ways to generate yield and store their wealth.

So, the future for crypto exchanges is bright, “as new use cases and killer apps emerge,” alongside retail users flooding the market and exchanges capture this growth.