The purchasers of insurance pay a premium to this pool and receive a payout if the covered risk comes to pass. Nexus Mutual, for instance, is a DeFi insurance platform that allows ETH owners to pool their funds in order to provide insurance for other smart contracts. But in a truly decentralized fashion, DeFi insurance basically matches DeFi users looking to earn income with those looking to reduce risk. These insurance contracts are similar to traditional insurance in many ways. The inherent volatility of crypto assets makes reliable fixed income nearly impossible to attain unless some kind of tranche lending process is created.ĭirectly related to the growth of DeFi and DeFi derivative products is the rise of DeFi Insurance. This is more important than ever to the crypto world. In the crypto world, protocols like BarnBridge and Saffron Finance are pioneering tranche lending.īarnBridge's main use case is tranche lending. Lower risk investors get the aggregated interest first, while investors seeking a higher return are paid with riskier income that may or may not actually be paid. And the owners of the tranche lending product get to choose their risk exposure. In the financial world, tranche lending products basically allow lenders to fund more volatile and risky loans by taking a pool of loans and segregating the proceeds to groups of investors based on risk appetite. Tranche lending is form of financial innovation that is making its way from the world of traditional finance to the crypto ecosystem. And by the end of 2020, over 5.5 million WETH had been created. In September of 2020, it was reported that over 5% of ETH had been converted into WETH. The ERC-20 token standard (the standard now used in most smart contract transactions) was created after the creation of ETH.īecause of this, many ETH holders want to convert their ETH into an ERC-20 token. In 2020, the supply of WBTC jumped from representing 600 BTC to 124,000 BTC. WBTC is basically a way to create an Ethereum-based derivative of bitcoin.īitcoin owners can then use the derivative version of the BTC they own to do things like lend, stake, or yield farm on the Ethereum blockchain. Search interest in "Wrapped Bitcoin" has grown by 400% over the last 5 years. Wrapped Bitcoin (WBTC) is another way the crypto market has managed to use derivatives to increase efficiency. Uniswap currently sit in second place on the DeFi derivatives market table. Search interest in "Uniswap" has grown by 1,300% over the last 5 years. Search interest in "MakerDAO" has grown by 213% over the last 5 years. Maker is the largest player in this market. The TVL of the DeFi derivatives market was around $25 billion in late 2020. The TVL of the DeFi derivatives market is currently $180 billion.īut its recent growth has been very impressive. The DeFi derivatives market, on the other hand, is still in its infancy. In the traditional financial markets, the total value of financial derivatives is estimated by some to be 10x larger than global GDP.Įssentially, derivatives dwarf the value of regular financial markets. Traditional Financial Products Enter the DeFi Landscape So if you want to learn about the most important trends in the DeFi space, read on. In fact, Total Value Locked (TVL) – a measure of DeFi transaction value – grew by 14x in 2020.Īnd in 2021, TVL more than quadrupled to a total value of $112.07 billion at its peak. In 2020, the growth of DeFi took the financial world by storm.
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