May 1, 2020 / Business

DeFi Market Prospects For 2020


According to Binance Research, the decentralized finance market in 2019 experienced a mini-boom, expanding both its customer base and infrastructure. And although the share of DeFi even in the cryptocurrency market remains relatively small, the sector is growing rapidly and attracts many traders and investors with its capabilities. What caused this interest and what are the prospects for DeFi in 2020?

To Investors

DeFi platforms open two ways to make money on cryptocurrency without trading at once:

  1. Deposits and stake – they are ready to pay from 2% per annum, depending on the currency and the website.
  2. Direct lending – on EthLend (Aave) and similar services, users can give other users direct loans in Ethereum at a certain percentage.

The fundamental difference between DeFi and cryptocurrencies for investors is that for the first time they receive income directly in cryptocurrency, and not in fiat due to market changes in value.

To Traders

Traders also received a couple of tools for comfortable work and the use of their cryptocurrency assets:

  • Fast loans – thanks to MakerDAO, traders can quickly get a loan in the DAI secured by ETH without having to sell their assets.
  • New trading opportunities, – dYdX and Harbor, – are examples of decentralized platforms for trading cryptocurrency derivatives based on ETH. Futures and options for ETH have become a reality and, unlike BTC, are promoted by non-centralized websites.
  • Decentralized exchanges are currently the leader in transaction volume among all DeFi websites. Traders on DEX can trade without verification and with virtually unlimited jurisdiction.

Such a relatively modest set will allow you to get free funds for trading, deposit something that previously you could only go around and quickly exchange a crypt for a crypt, without complex verification.

To Developers

According to Defiprime data, as of April 2020, 237 projects in the DeFi sector have been launched or are under development. Part of these projects are tools for creating new platforms, applications, and services. For example:

  • Dharma is a protocol for lending and deposits through which each user can create their own dApp using Ethereum smart contracts;
  • 0x is a protocol for decentralized exchange of cryptocurrencies, based on which a decentralized exchange can be launched. And here is the dynamics of trading volumes on exchanges with 0x:

0x dex

  • DutchX is a protocol for decentralized ERC-20 token trading with which you can launch your trading pairs and conduct trading using the so-called Dutch auction.

And this is only a small part of the developed tools.

Blockchain And Decentralization

The leading blockchain for DeFi development is Ethereum. Initially, the share of the sector in the cryptocurrency market was estimated only by the number of blocked Ethereum.

Currently, more than 80% of the development for DeFi is conducted on Ethereum.

Ethereum’s dominance is explained by both technical advantages – relatively high bandwidth, low-cost smart contracts, and a convenient micropayment currency, as well as the industry’s monopolist – Maker launched on this blockchain. And although Maker’s market share is gradually falling, new developers still prefer Ethereum.

We add that for some time EOS was the leader in terms of the number of blocked funds (in US dollars):

eos defi

Regarding the decentralization of DeFi services, Kyle Kistner, bZx strategic director, developed criteria for evaluating the centrality of DeFi projects, including custodiality, the ability to publicly set rates and token prices, and others. According to his findings, the key players in the sector are now located on the centralization scale as follows:

dex decentralization

Therefore, at this stage in the development of the industry, DeFi is not entirely decentralized. Although, as already mentioned, most of the projects are still at the development stage and in the future, the share of decentralized apps and platforms may increase.

DeFi Market Prospects In 2020

DefiPulse charts show that starting in 2019, the decentralized finance market is growing. And although US dollar investments sagged strongly after the fall in the value of cryptocurrency, the amount of blocked ETH is almost 3 million coins. How will the structure of the ecosystem and the market change this year as a whole?

Technological trends

The success of Ethereum projects encourages many developers to create analogues on other blockchains. This will expand the number of currencies used in DeFi and reduce the load on the Ethereum blockchain, in which transaction volumes have grown significantly.

According to DappReview, DeFi platforms based on Ethereum projects provided 778% increase in transaction volume in the first quarter of 2020 compared to the same period in 2019.

Among the “alternative” DeFi are:

  • YoloSwap – EOS-analogue of KyberSwap;
  • Equilibrium protocol – EOS analog of Maker;
  • Acueos – EOS analog of Compound;
  • Alchemint – NEO-analogue Maker;
  • PoloniDEX – a decentralized exchange based on Tron;
  • Switcheo – a decentralized exchange based on NEO;
  • Djed is an analogue of Maker on Tron.

As well as a number of other decentralized exchanges, the rapid growth of which forms a DEX boom. Of course, these analogues are unlikely to receive the same distribution as their Ethereum originals, but together they can reduce the share of Ethereum in the total sector. Well, in order to overtake Ethereum, NEO, EOS, and Tron, you will need original developments, which we are very likely to hear about in 2020.

Thus, in the first quarter of 2020, we observe three trends in the DeFi sector:

  • The growth of the total market, which clearly demonstrates the jump in transaction volume on Ethereum.
  • Transferring projects to analog blockchains and developing new projects on Ethereum.
  • The gradual elimination of the Maker monopoly and the increase in the share of other platforms.

Together, this gives us all reasons to believe that 2020 will be a year for the small but dynamic DeFi sector to grow and develop the ecosystem.


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