2022-12-19 13:26:34
Why would the DeFi sector benefit from the collapse of FTX?
The bankruptcy of FTX was a systemic crisis for the entire cryptocurrency industry, showing the unreliability of centralised trading platforms run by people who have their own interests at heart. Access to user assets can be a challenge for cryptocurrency exchange management, as evidenced by the sad experience of trading platform Sam Bankman-freed, who faces a decent sentence for breaking the law. The FTX founder is accused of misappropriating user funds, misusing company assets and money laundering (source).
Amid a loss of confidence in centralised exchanges, users began withdrawing their assets en masse from most cryptocurrency exchanges, especially in the first two weeks after FTX was declared bankrupt. At the same time, interest in the decentralised finance sector was growing, with DEX Uniswap even ranking second in terms of trading volume after Binanse for a while in mid-November. More and more investors are turning their attention to decentralised trading platforms.
According to Naschkei Capital, in 2022, $14 billion was invested in the DeFi sector, spread across 725 cryptocurrency projects. In addition, the number of users of decentralised protocols increased 44% quarter-on-quarter to more than 5 million wallets.
However, the correction in the cryptocurrency market did not bypass the DeFi sector, in the last month the total amount of blocked funds in decentralized protocols decreased by 10% - to $39.6 billion, according to DeFiLama. MakerDAO is leading the way with $5.9 billion, with Lido ($5.76 billion) and Curve ($3.69 billion) in second and third place, respectively. At the same time, the total volume of trading on decentralized exchanges for the month of November grew by 80% compared with October and reached the value of $104.5 billion.
In addition, in 2022 even institutional investors began to show interest in decentralised finance products. Among them is Pennsylvania's well-known Huntingdon Valley Bank, which has received credit approval from MakerDAO with an initial debt ceiling of $100 million.
However, the DeFi-industry representatives also have their own unsolved problems. The first is the presence on the market of fraudulent schemes in the form of scams involving user funds with the subsequent withdrawal of all liquidity from the project by its creators. Secondly, there are periodic hacker attacks and breaches of protocols.
There are also non fully decentralised organisations that masquerade as DeFi, but have all the drawbacks of centralised platforms. Lack of liquidity is another major problem that the industry is trying to solve by using revenue farming and providing rewards to liquidity conduits.
The competitive advantages of the DeFi sector over the traditional financial industry are, firstly, ease of access - most protocols simply require a cryptocurrency wallet to be installed. Secondly, decentralised services give customers full control over their funds without the need to trust a third party, i.e. interaction with the service will take place without intermediaries. Thirdly, it is possible to launch a DeFi product for any project, without the permission of banks and regulators.
In essence, decentralised protocols are of interest to users because they offer a more efficient and transparent way to conduct financial transactions. DeFi aims to become an alternative to the banking sector and replace the traditional technologies of the current financial system, using open source code for its tasks.
With users' trust in centralised exchanges declining, new ways to attract liquidity and more secure protocols, there remains a strong possibility that the decentralised finance space will continue to grow next year, ahead of the pace of 2022.
Do you think the DeFi sector will continue to grow?
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