Have you got the news? “Due to the craze of Crypto known as decentralized finance, digital currencies have turned into this year’s best-performing asset in this year.”
The Bloomberg galaxy Crypto index of digital coins has increased upto 65% that exceeded the gold’s jump by more than 20% as well some other global stocks, bonds and commodities in the market. One of the key reasons for this is due to the sudden surge in Ethereum, which accounts for more than a third crypto gauge’s weight.
What is DeFi and How is It Affecting The Market?
Decentralized Finance is the fastest growing sector of the crypto trading industry. You can say that it is a merger of traditional banking services with decentralized technologies like blockchain. In a more technical way, you can say that it is an amalgamation of the decentralized assets like digital currencies, smart contracts, protocols and applications.
With the growth of decentralized finance (DeFi), which also also caused the sudden rise in Ethereum. And it appears to be maintaining the leading position in the market said by Mr Mike McGlone, a strategist at Bloomberg Intelligence.
DeFi & ERC 20
The technical term for calling the smart contracts that are running on Ethereum is called ERC 20, which enables anyone around that world to build automated lending protocols. Based on the supply and demand, its algorithm set interest rates accordingly, so there’s no mediator in between to set the cost of finance. And because of this traders can easily borrow or lend loans and earn interest rates without the need of intermediaries like traditional banks.
With this concept as a use of blockchain became quite popular especially with many DeFi applications running on Ethereum blockchain which is the reason behind the boost of crypto assets in the market.
The DeFi collateral levels of less than $700 million reached the $ 9 billion value in the beginning of the year only. Other than DeFi, advocates of Bitcoin also argue that it offers a store of value as they are concerned that pandemic could be the cause of inflation and it can also weaken the dollar value.
The Crypto market is already doing well in the current pandemic scenario, partly because Bicoin seems to work as a refuge asset like gold when the risk multiplies.
While there are still some skeptics who are not convinced, since crypto marketing has a history of wild swing in the past. According to them, there seems to be a certain crack in the DeFi hype as well, suggesting that it is not as decentralized as advertised.
And it seems true that there are some fluctuations since the Bloomberg Galaxy Crypto Index fell up to 8% on the three sessions through Tuesday as the pandemic hurt sentiment across a number of assets, which also highlighted the risk of sharp moves in the crypto market.
Overall all we can say that with more risk there are better chances of gaining. Even with inflation in the market, the crypto industry is doing quite well and traders are also showing their interest in the popular cryptocurrencies like Bitcoins and Ethereum. So what are your thoughts about this article, if you liked it please don’t forget to share with others as well.