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Decentralized Finance or DeFi exploded in 2020, broking new total value locked (TVL) record and surpassing new all-time highs. The TVL in DeFi protocols rose from $600M in 2020 to over $48 billion in mid-2021. While this happened, the trading volumes over decentralized exchanges like Uniswap, Pancakeswap and more started to rise dramatically. Uniswap recently released its V3 and is now prepping for the next wave of DeFi growth.
However, in 2021, a certain set of trends are expected to accelerate. Here is how the DeFi space will change in the second half of 2021 and DeFi development services need to pace up:
Addressing the Impermanent Loss
Decentralized swapping pools always faced issues with liquidity and that is when liquidity pooling came in and changed the game. The liquidity providers (LPs) pool in equal share of a trading pair like ETH/USDT and whenever a trade is executed in the protocol that uses this pool, a certain percentage of transaction fees is earned by the LPs.
It looks all good in theory but the liquidity providers are at a big risk to lose their money while pooling. This is because the assets they pool in are very volatile in nature and any price volatility can lead to losses known as impermanent loss (IL).
This is currently a major challenge for even the biggest exchanges like Uniswap. Over time, DeFi development started fixing the IL issues by developing new and innovative automated market makers (AMMs). For example, Bancor released v2.1 which required LPs to provide only one token into a liquidity pool.
Interestingly, the protocol provides the other half of the liquidity pool. This is done in the form of a newly minted native token of the protocol. This significantly reduces the risk of impermanent loss to the users’ assets.
Secondly, not all the LPs get the fees for every trade. As the LPs provide only half of the assets, they receive only half the trading fees. The rest of it goes to the protocol. In addition to this, if the LPs undergo any IL, the loss is covered by minting new BNT tokens by the Bancor protocol.
DeFi getting ready for enterprises
While DeFi has helped establish an open banking system, its use for enterprises is still being questioned. This is changing slowly because DeFi’s composability is being utilized by DeFi development services to build innovative solutions for enterprises. Blockchains like Polkadot are supporting the development of enterprise-efficient DeFi solutions and most of the DeFi development services are using Ethereum alternatives like Polkadot, Solana, Binance Smart Chain, and Polygon to develop web3 solutions for enterprises.
Liquidity of Staked Assets
Currently, the DeFi protocols lock the assets in the liquidity pools. As a result, the LPs are not able to do anything else with these staked assets. The DeFi development service providers are now innovating this space and trying to liberate these tokens and use them in more potential opportunities. Many DeFi protocols are enabling LPs to mint synthetic versions of their tokens. While the actual assets serve as collateral, the liberated synthetic tokens are being used by LPs to explore other opportunities.
DeFi is all prepared to gain mainstream adoption. But for the enablement of that, DeFi development needs to keep pace with the changing trends.
Are you prepared to embrace the trend change? If you really are, Antier Solutions can help you develop next-gen, trustworthy and reliable DeFi Apps that are destined to be successful.
Schedule a free demo of one of our DeFi apps or connect with our subject matter experts to share your business needs.
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