In early 2018, the bursting of the bitcoin bubble quickly put an end to the cryptocurrency phenomenon. The value of the most important digital coins also dropped by 90%, giving reason to those who argued that they were nothing more than a large chain of Saint Anthony . Cryptocurrencies thus seemed to be heading towards the oblivion of technology.
Recently, however, the trend has reversed. In particular, the virtual currency of Ethereum (second only to bitcoin in diffusion and value) has reached its maximum value since August 2018, while the whole world of cryptocurrencies has started to rise again with some constancy. According to some experts , the credit is largely due to the so-called DeFi (decentralized finance), the latest speculative phenomenon – obviously at high risk – that arose on the blockchain.
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JACOPO IACOBONI
Much like ICOs represented the blockchain equivalent of stock exchange listings, DeFi represents the decentralized and automated version of some traditional financial instruments. By taking advantage of the platforms that offer these services, and which live mainly on the Ethereum blockchain, it is possible for example to buy digital currencies that follow the trend of the dollar, oil or gold. Or even Donald Trump’s chances of being re-elected.
The service that is having the most success, however, is the provision of loans to a plurality of subjects based on risk appetite (a mechanism in part similar to social lending ). Everything is regulated through smart contracts – contracts that are automatically executed when the conditions signed by the parties are met – thus reducing the possibility of fraud and above all eliminating the need for intermediaries and controllers.
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ANDREA DANIELE SIGNORELLI
The San Francisco Compound startup , for example, is one of the best known in the industry and also leverages the Ethereum blockchain. Compound allows you to purchase your digital currencies to provide and obtain loans automatically and without intermediaries. Its market capitalization – represented by the total value of its digital currencies – recently exceeded $ 1 billion.
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DeFi therefore represents the new blockchain-based financial far west, which on the one hand presents the typical risks associated with promises of easy earnings, but on the other hand offers concrete opportunities for many people cut off from traditional financial instruments (including 1 , 7 billion people without a bank account): “The most important aspects of DeFi are also the most boring,” wrote Ethereum founder Vitalik Buterin for example. “Even just offering anyone in the world access to a crypto-dollar with an interest rate equal to inflation can be a godsend for a lot of people.”
The growth that this sector is having, however, is so dizzying that it is feared that yet another bubble is forming: the economic value deposited in the various DeFi services exceeded one billion dollars in the first days of June 2020 and has more than quadrupled since then. , reaching 4.3 billion in August. Not only that: the total absence of brokers and controllers obviously means that the risk of running into some scam – or some error in the code of smart contracts – is particularly high. Furthermore, the bubble could burst at any moment, leaving the newcomers with the match in hand and the wallet empty.
ANDREA DANIELE SIGNORELLI
For the future, however, there are those who believe that DeFi can evolve further and start offering services such as mortgages and insurance, becoming an increasingly reliable and mature tool. In the end, the real unknown is precisely this: are we facing yet another bubble linked to high-risk speculation or will DeFi be able to become the first concrete application of cryptocurrencies?
