While financial experts continue to argue about the relative value and risk of investing in cryptocurrencies, the broader trend toward a reimagining of the entire financial system continues without any signs of slowing down.
This is DeFi, or decentralized finance, and it encompasses even more dramatic changes than in fintech, or financial technology.
While many fintech innovations are essentially new ways of interfacing and handling money, the essence of the banking practices remains the same, whereas DeFi represents an entirely “new financial architecture,” according to the Financial Post.
“To be clear, this is much bigger than financial technology or fintech. Most fintech innovation is digital wallpaper — a sleek user interface that conceals the old system beneath,” according to the article. “In fewer than two years, many of these protocols — they aren’t ‘startups’ in the traditional sense — are competing with or eclipsing many fintech darlings. Banking incumbents are surely next.”
Many investing experts and crypto news sites are predicting a steady rise of DeFi companies, even as the value of individual cryptocurrencies continues to wobble. Coin Quora, for example, reported that “Analysts Anticipate Another DeFi Boom This Season.”
“Analysts are anticipating another rise in Decentralized Finance (DeFi) token prices,” the site reported. “The latest rise in the Total Value Locked (TVL) platform suggests a strong and steady course for DeFi tokens in the next few months.”
DeFi is clearly here to stay. If you’re considering investing in DeFi, here are a few of the heavyweights within this nascent industry.
Uniswap, essentially a decentralized exchange platform, has often seen days with volumes exceeding Coinbase, a popular crypto-trading app worth $50 billion.
The most popular decentralized application (DAPP) on the Ethereum blockchain, Uniswap is the 7th-largest digital asset, with a market capitalization of $11 billion.
“Uniswap, like many other cryptocurrencies, has had a relatively good year,” Market Realist reported. “Although UNI has been down recently, it might be a better investment than other cryptocurrencies.”
This DeFi platform is able to connect lenders directly to borrowers. That means no contracts to sign and not even a meeting with the person or entity that users borrow from.
It’s a transparent and cost-effective process that removes the middlemen, like the agent. Centrifuge also dispenses with the inefficiencies that are often intrinsic to traditional finance.
According to Yahoo News: “Centrifuge raised $8 million from its seed round in 2018 and a further $4.3 million from a SAFT (Simple Agreement for Future Tokens) in 2020. Investors include IOSG, Fenbushi, Blueyard, Galaxy, Fintech Collective, Mosaic, Rockaway, Moonwhale, TRGC, HashCIB, Crane Venture Partners, Fabric Ventures, Atlantic, Inflection, Semantic, Mariano Conti, Stani Kulechov, and Julien Bouteloup.”
DeFi Yield Technologies Inc. has a proprietary automated yield engine that has simplified investing in decentralized finance. It leverages several DeFi protocols and strategies to boost diversification and maximize yields while minimizing the exposure to risk.
It’s a newer company, but investors are already very interested. When ThreeD Capital recently invested $400,000 in DeFi Yield Technologies, Sheldon Inwentash, founder of ThreeD, explained why he believed it was a smart investment.
“Investing in decentralized finance can be complicated and it is easy to lose money if you do not know what you are doing,” said Sheldon Inwentash. “This makes it extremely difficult for DeFi to make it into the mainstream. DeFi Yield Technologies is reinventing financial services by building financial applications that allow anyone to invest and earn a return without having to understand all the different protocols and strategies.”
These are just a few examples of the companies changing the financial landscape. If you’re truly interested in investing in DeFi, use these examples as a springboard for your own research.
Successful investors do their homework, but this should help get you started.