As the backbone of the industry, DeFi will continue to grow during the crypto winter

Source: AdobeStock / Ivan Kmit

Mariano Di Pietrantonio is Head of Strategy at MakerGrowtha central unit of MakerDAOthe lending platform that manages the COME ON stable currency.

This crypto winter needs no introduction. Many within cryptocurrency are thoroughly concerned by thoughts of Sam Bankman Fried, the former face of the industry now sitting in a prison cell. Collectively, the crypto space is questioning what we believe is true for our industry, whether we can truly judge a success story and how to prevent it from happening again.

The impact of recent events on the perception of cryptocurrencies has been dire and compounded by the fact that this low follows a high period, where novice retail investors were empowered to join the burgeoning cryptocurrency field. Now, skepticism is affecting even the most trusted centralized crypto projects. Companies that have never been questioned before need to show “proof of reservations” and radically increase their transparency to survive.

The crypto finance space is currently a long way from gaining public trust. While good ideas and intentions exist, there is little guarantee that they will not be corrupted and exploited.

With that in mind, the praise DeFi (decentralized finance) is receiving from some circles is to be expected. Removing the centralized component of cryptofinance and instead providing trust through decentralized protocols and codes, community voting systems, and built-in transparency for decision making and assets managed has understandable appeal.

While the centralized cryptocurrency world talks about “auditing” as if the concept were new, DeFi has been humbly enacting those ideals for nearly a decade.

Far from the hype, celebrity endorsement and hero worship of the past year, DeFi has been quietly building a better financial world and will continue to build through what comes next.

DeFi’s ongoing appeal

While we’ve had our bulls and bears, such as the DeFi summer of 2020 and the apparent DeFi winter of 2022, the tangible capabilities of DeFi have continued to grow. Mainstream financial institutions and large enterprises, such as Tesla, Monetalisand huntingdon valley bank, have adopted DeFi for real-world problem solving. Through the ends of 2022, MakerDAOThe decentralized community of has been silently managing a portfolio of over $7 billion in AUM (assets under management), increasing and decreasing this number in sustainable and sensible responses to market events.

Removing centralized intermediaries from the financial process is something those of us in DeFi knew would be the most important factor to watch over the long term. Fundamentally, the value of cryptography comes from the immutability of the blockchain as a database. Decentralization, transparency, and community action are intrinsic parts of this world.

Even regulation, which certainly has its place in the future of finance, cannot replace the need for trustlessness enshrined in the code. Regulation alone cannot guarantee the absence of corruption; a fact that is also true outside of cryptocurrencies. We can look at examples of corrupt corporate entities that have kept secrets from regulators as evidence of this: Enron and Theranos immediately comes to mind. It is also worth mentioning that Enron, just like the leadership of FTP extensionhe fought for more regulation in his field.

While regulation provides a means of holding perpetrators accountable, it does not always deter bad actors. This goal requires decentralization from the outset.

DeFi provides essential liquidity

A crucial fact, understood by those in DeFi, is that using market capitalization as an indicator of the value of a company or token is misleading. The latest bull cycle has relied on market capitalization to judge the seemingly booming health of some cryptocurrency exchanges and other centralized entities.

But, just like googling the net worth of a public figure, this can be misleading. What matters is not overall net worth or market capitalization, but rather the liquidity of the assets.

DeFi protocols can be used to provide liquidity to the rest of the market, further demonstrating their integral contribution. MakerDAO provides liquidity for cryptocurrency lending and lending, while other DeFi protocols provide liquidity pools for users to lock crypto assets into smart contracts, providing liquidity for decentralized exchanges (DEX). A more liquid market is associated with less risk, which means a safer environment for users.

On a mission to build

Looking to 2023, the DeFi space will build on this value to improve service offerings. Until now, CeFi has been a simple entry point for crypto newcomers thanks to its easy-to-use apps, fun incentives, brand endorsements, and reliance on centralized teams to take care of the details. DeFi has a tendency to require more research from its users, particularly in a DAO (decentralized autonomous organization) where token holders vote on the direction of a project. The fact that due diligence, reporting and decision making are not absorbed by a centralized entity naturally makes DeFi services more complex.

Improving the UX (user experience) and user interface (UI) of DeFi’s many features will enable us to open up the future of finance to new audiences and achieve the universal goal of financial inclusion.

Furthermore, for many projects, the road to full decentralization is incomplete. This year’s events have added new momentum to more projects in our industry to open community voting and record on-chain transactions and decisions.

The roadmap for many projects to be decentralized will be accelerated in 2023, with DeFi developers already busy making these plans a reality.

This radical movement towards transparency, accountability and community action will advance the DeFi agenda and ultimately help us leave centralized corruption in the past. Right now, the developers at the heart of this movement are determined to further ramp up their valuable output. Instead of allowing the crypto space to play to the whims of viewers and the actions of the corrupt few, following the lead of DeFi will ensure we emerge from the bear market as long-term winners.


To know more:
– New report shows that DeFi outperforms traditional finance under market conditions
– Looking at the untapped potential of DeFi

– What DeFi offers besides lending for cryptocurrency speculation
– Top 7 Decentralized Derivatives Trading Platforms

– Moving from Crypto Winter to Winter Spring: Lessons from the Bear Market and When Winter Will End
– The pros and cons of Web2 Joining Web3

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