Decentralized Finance (DeFi) Trends & Developments 2023, 2024

Blockchain-based applications like NFT, Metaverse games, and in particular, Decentralized Finance, have been helping cryptocurrency become mainstream. Further, the expansion of the decentralized finance niche and the revival of the bullish market is said to reform traditional financing with DeFi trends. 

According to Coingecko, the market cap of the decentralized finance industry is $52 Billion and the value is expected to increase with the adoption of DeFi-based services and trends. Further down this article, some trends and development that could boost the DeFi space are discussed.

What is Decentralized Finance?

Decentralized Finance is a state-of-the-art financial model that leverages blockchain technology to offer financial services like investing, borrowing, lending, or trading virtual assets without the intervention of an intermediary.

DeFi platforms employ smart contracts (a pre-coded algorithm) that execute certain functions when the specified criteria have been met by two parties involved in the transaction.

How does DeFi Work?

DeFi is a modern fintech solution that automates and executes financial transactions without the involvement of central authorities like banks or financial organizations. Smart contracts implementation in DeFi-based platforms removes the complexity involved in traditional finance and saves processing time & cost due to the automated execution of the process. The intermediary cost, processing time, and man-made errors are avoided by removing the central authority or the intermediary.

In the DeFi-based platform, all the transaction-related information is stored on a distributed ledger which can be accessed and validated by the platform user. It improves the trust and transparency of the platform, which are the main advantages of DeFi-based platforms.

In addition, the user can save, borrow, lend, or swap crypto or virtual currencies using the internet and smartphone from anywhere, at any time. The platform is more secure and advanced, enabling better integration and greater convenience.

Important Stats & Facts on DeFi Niche

Some facts & statistics on the decentralized finance industry that represents the thriving phase of DeFi are:

(i) According to a report from Grandviewresearch, the global DeFi market was valued at 13.61 in 2022, and the figure is estimated to increase at a CAGR of 46% from 2023 to 2030.

(ii) According to DefiLlama, the Total value Locked in the decentralized finance niche was $42 Billion in November 2021.

(iii) The popular Liquid Staking Platform, Lido, is the largest protocol in terms of TVA ($6.3 Billion)  in its smart contracts, as per the report from DefiLlama.

(iv) In terms of TVA, the second largest protocol is MakerDAO which mints decentralized stablecoin, DAI with a TVA value of $6.1 bn.

Top DeFi Trends & Business Opportunities

Some upcoming trends in the Decentralized Finance ecosystem to make a positive impact on the financial world are discussed below.

1. Crypto Bridges

Trading cryptocurrency across different platforms is possible due to cross-chain compatibility and crypto bridges. There are two types of cryptocurrency bridges called Trusted Bridges and Trustless Bridges. 

In a trusted bridge, the transfer of native tokens and currency from one blockchain to another occurs through a central authority. In the case of another type, smart contract and trading algorithms automate the cross-chain transfer. 

Both trends are emerging and will be normalized across the crypto space based on their applicability.

2. Traditional Finance Integration

Integration of traditional financial models into the DeFi ecosystem enables the conversion of real-world assets like mortgages, real estate property, and corporate credit into cryptocurrency or virtual assets.

A new collaboration between Archblock and MJL Capital plans to implement a traditional finance system into decentralized finance to make commercial banks integrate the DeFi ecosystem.

3. Blockchain Game Monetization

The amalgamation of gaming and financial niche led to the development of the Blockchain game ecosystem. An in-game store (where users can buy gaming items for real money) is a perfect candidate for the DeFi-based gaming system. According to a report from fine extra, more than a billion users won, sold, bought, and traded in-game items as Non-Fungible Tokens (NFTs).

This trend might evolve and enable the development of new-age decentralized finance or a GameFi ecosystem where these in-game assets can be traded or used as collateral to obtain loans.

4. DEX and AMM Advancement

According to a source in Hedera, decentralized exchanges witnessed massive development and reached a peak trading volume of $60 Billion per day in 2021. The advancement of DEX-based exchange platforms requires a cost and time-saving platform. The growth of these platforms is catalyzed by Automated Market Makers (AMM), and almost all the DEX platforms employ AMM to enhance liquidity. 

Uniswap, a popular DeFi platform, is the second-largest ecosystem based on TVL (Total Value Locked), which pairs Ethereum-based tokens and integrated AMM. It is a perfect option for those who prefer yield farming on the Ethereum network.

5. Cryptocurrency Insurance

The demand for DeFi insurance policies paves the way for the standardization of insurance policies for digital assets. 

The increased amount of TVL in blockchain-based platforms led to the mandated inclusion of financial solutions like Insurance that help crypto investors safeguard their digital assets. 

A Peer-to-Peer DeFi insurance platform, Nexus Mutual, covers stable coin investment, smart contracts, exchanges, etc., and operates on the Ethereum Network.

The demand for the security of virtual assets from the user made the exchange platform integrate the DeFi-based Insurance system for enhanced ROI.

6. Decentralized Derivatives

Derivatives are considered one of the largest markets due to their notional value and volume, and they come with leverage. Perpetual, Options, and Future are popular derivatives that might increase trading volume by improving the on-chain derivative DEX platform. 

Options derivative with the introduction of OpFi protocol (DeFi infrastructure powered by Options) will witness more adoption.

7. Liquid Staked Derivative

Liquid staking offers more versatility and greater efficiency than traditional staking enabling investors to access their staked asset while availing the benefits of staking their tokens. 

Liquid Staked Derivatives represent the staked asset of token holders and confirm the investor participation in the staking pool. These derivatives are used to lend, borrow and trade in the DeFi space.

8. Central Bank Virtual Coin

Central Bank Digital Currency (CBDC) is the virtual version of fiat currencies in the digital space. It is developed by a central bank, enabling those without a bank account to access it. It also enables cross-border transactions with smartphone and internet technology.

Many nations have plans to introduce their CBDC, which might increase the adoption of these virtual currencies into the DeFi-based platform.

DeFi Trends - Anticipation & Hype

DeFi is the evolution of the finance niche and contains the potential to reform the modern financial system with greater security, transparency, accessibility, and data integrity.

The adoption of decentralized finance and the GameFi ecosystem into the commercial space aligns DeFi-based projects with the traditional financial ecosystem. The challenges in the realization of commercial DeFi-based projects lie in safer asset management and maintenance of core standards of blockchain networks.

While the DeFi-based ecosystem is still evolving, better surveys and bearish markets can help a DeFi development company get a clearer insight into DeFi trends that enable them to come up with innovative DeFi-based solutions to help investors succeed in this thriving space. 

If you want to step into the profitable DeFi space, approach Maticz for scalable DeFi development solutions.