Over the past year, several major cryptocurrency companies have suffered, and the banking industry is also in crisis. Our experts tell us what problems the DeFi sector is solving

Cryptocurrencies returned to growth in 2023. Since the beginning of January, Bitcoin’s price soared 70% and hit a local high above $28,000. The largest altcoins in terms of capitalization also rose in price following Bitcoin. At the same time, the banking system is suffering: it all began with the bankruptcy of three banks in the United States (Sillicon Valley Bank (SVB), Silvergate and Signature Bank). And then the problems of Swiss Credit Suisse, which was saved by the takeover of UBS. However, the situation continues to be uncertain. And more and more investors are looking toward DeFi.

For cryptocurrencies now also plays the fact that the U.S. authorities are trying to reduce tensions in the banking sector. And to take additional measures. And, as we remember from recent history, low Fed rates and “dovish” policy of the U.S. authorities. Then it’s a path for risky assets to hit record highs. It was during quantitative easing (QE) that Bitcoin quotes were at a peak of $69,000. And after the change in QE, the crypto market began to correct.

It is important to understand the high dependence of digital currency quotes on U.S. policy. This is a serious factor, but not a determining one. Last year, several major cryptocurrency companies, including trading venues and hedge funds, went bankrupt. The most famous example is the FTX exchange, as well as the Terra project. The total losses amounted to billions of dollars.

The main problem of both the banking sector and the largest bankrupt crypto-projects is centralization. In order to solve it, financial services in the form of services and applications – decentralized finance (DeFi) – were created on blockchain. They are an alternative to the banking sector, which is particularly vulnerable in recent times. And a replacement for the traditional technologies of the financial system.

Important benefits of decentralized finance

A key advantage of DeFi is the ability to function without the need for a third party. A computer program executes agreements between two or more parties. As a result, under one condition or another, certain actions take place. This is the principle on which the smart contract works.

Just as importantly, when working with DeFi-service, the user is always in control of all of his funds. Customers of centralized platforms (whether banks or exchanges) have to trust them with their money, to give it for deposit. In the case of decentralized finance the client connects his own wallet and conducts all transactions directly from it.

The DeFi market is just beginning to develop. Our experts estimate that only 7 million people have used decentralized finance protocols so far. The potential growth of this sphere is estimated to be at least 50 times in the coming years.

In conditions of banking crisis and collapse of centralized giants of crypto-industry, probably, it makes sense to pay attention to the sphere of decentralized finance DeFi. This is a promising industry that is just beginning to develop, and with the right approach, allows investors to work with their assets in a transparent and relatively safe way.

A wave of repression by U.S. exchange regulators is affecting the companies behind development of decentralized crypto exchanges. Review by Crypto Upvotes experts

The cryptocurrency exchange dYdX, one of the most popular DeFi trading platforms. It is on its way to becoming a fully decentralized project, not the least of which is the policy of the U.S. government. Right now it’s running on a hybrid decentralized model. But in September, developers plan to launch a new version of it. This should help reduce the influence of centralized structures, on which it still has to rely.

The exchange depends at least on the dYdX Trading behind its development and StarkWare’s solutions for scaling trading capabilities on the Ethereum network. In the new version, dYdX will run on the Cosmos blockchain and leverage its own protocols. This is to minimize reliance on centralized links, any of which could potentially be pressured by regulators.

Decentralized finance (DeFi) projects are characterized by the absence of intermediaries for trading or loan transactions in crypto-assets. An automated protocol, the smart contract, plays the role of an intermediary. However, as in the case of dYdX, the development of this protocol is the responsibility of a specific company and team of developers.

Most DeFi projects issue their own tokens, which are traded on cryptocurrency exchanges. After the head of the U.S. SEC Gary Gensler said. that almost all existing crypto-assets are considered securities by the agency, any token issuer potentially falls under the agency’s oversight.

Repressions from the SEC of epic proportions

Speaking to community members during a conference call on March 30. The head of another decentralized exchange, SushiSwap, Jared Gray. Said he “stopped getting inspired” by his work. Gray spoke candidly about his attitude towards American regulators. In particular, he mentioned Senator Elizabeth Warren’s campaign platform, which included a total ban on cryptocurrency transactions in the United States. Politico published an article about Warren, saying in the headline that she was “raising an army against cryptocurrencies.

The week before, Gray revealed that he had received a subpoena from the SEC regarding his involvement with SushiSwap. To fund the impending lawsuit, Gray brought a proposal to the exchange’s existing Decentralized Autonomous Organization (DAO). In it, he proposed setting aside $4 million from the Treasury of the Record to create a “Sushi DAO Legal Defense Fund.”

“This is about an onslaught and retaliation of epic proportions, and it’s only going to get worse,” warned former SEC official John Reed Stark in a commentary for Bloomberg. Stark served as a senior adviser to the agency. And headed the Internet enforcement offices. He observed that regulators initially left market leaders untouched, focusing on easy-to-access projects. But now they’re targeting the big players as well.

What’s already happened this year

Also earlier this year, the SEC sued the cryptocurrency exchange Gemini because its Earn. Which allows users of the site to earn interest from lending their tokens. The service then fined Kraken exchange $30 million, while equating its stacking service with making money from unregistered securities. Later, the agency banned Paxos from issuing the BUSD token. It was second only to Tether’s USDC and Circle’s USDC in terms of capitalization.

In late March, the SEC accused Tron blockchain founder and Huobi exchange co-owner Justin Sun of artificially inflating trading volumes on the exchange. Just the same day, Coinbase received a notice from the SEC. It threatened to sue over a number of tokens and financial products available on this platform.

Full decentralization is needed to save crypto exchanges

Decentralized exchanges are already passing Coinbase in terms of trading volumes. Uniswap reached $71.6 billion in March, according to The Block Research. This is 45% higher than Coinbase’s $49.4 billion in the same month. Among traditional crypto exchanges, Coinbase is second only to Binance in terms of volume.

Summing up the results of the first quarter of this year Coinbase representatives wrote. That the trends on the exchange reflect a larger market. The actions of the SEC and CFTC only underscore the uncertainty surrounding Ethereum and other altcoins.

Referring to the Coinbase situation, in an interview with Bloomberg, dYdX head Antonio Giuliano says. About more and more cryptocompanies refusing to actively engage with regulators in the U.S. against the backdrop of what is happening. His company, dYdX Trading, will continue to work on the protocol after the launch of the new version of the exchange.

According to Giuliano, the network on which the next version of dYdX will run will work with multiple transaction validators. This is to minimize the risks of being banned or censored, to which the centralized mechanism is subject. The exchange will not technically have the ability to reject or censor transactions.

Our experts believe that the final form for everything in DeFi should be complete decentralization !

Daily futures trading volume on DeFi platforms reached $5 billion. This is the biggest amount since Terra collapsed in May of this year. Crypto-Upvotes expert review.

DeFi platforms increased revenues amid the outflow of funds from centralized exchanges that occurred due to the collapse of FTX. On-chain data showed an increase in activity on decentralized futures trading platforms and an increase in revenue for DeFi protocols, Cointelegraph reported.

However, not all decentralized applications (DApps) and protocols show such a trend. Because some of them have financial ties to FTX and Alameda. But data on DeFi projects’ revenues show that at least three protocols have exceeded $1 million in the last seven days, including Ethereum and OpenSea Marketplace.

Decentralized futures trading platforms have increased their trading volumes to record levels. Their daily turnover reached $5 billion, the highest since the Terra token crash in May of this year.

Despite the increase in trading volume, the total value of locked-in assets (TVL) at DeFi only increased at seven networks. Gains Network, a futures trading platform on the Polygon network, showed the biggest increase. Its TVL increased 17.3% over the week. And inter-network protocol Ren saw its TVL drop by 50%. This is because Ren worked closely with Alameda. And received quarterly funding and stored its funds directly on FTX.

Blockchain’s profit growth comes on top of an unchanged number of daily active users. Compared to previous weeks, the daily profits of leading blockchains have increased by more than 300%. This suggests that transactions among existing users are occurring more frequently.

Despite growth in profits, only Ethereum made profits among PoS-based blockchains. Other leading networks such as Polygon, BNB Smart Chain and Optimism did not profit. Holders of these tokens suffered inflationary losses.

In what cases is borrowed liquidity useful in DeFi. And also what dangers it brings. And how to borrow for a user who owns Bitcoins. Crypto-Upvotes expert review

Rapid falls and rises in quotations are characteristic of cryptocurrency sector. Part of the high volatility is due to the large share of borrowed capital involved in transactions. Nevertheless, convenient borrowed liquidity is also one of strong points and features of DeFi finance.

Virtually every blockchain ecosystem has its own decentralized finance loan protocol. And the largest blockchains even have several. Such protocols work roughly the same way: by freezing their coins in a smart contract, users can release liquidity. When they receive credit in desired cryptocurrency or stabelcoins, interest accrues on deposit and borrowing. And for using a platform, a bonus is given as tokens to vote on future protocol development. Stablecoin borrowing usually comes at an impressively low interest rate of 1% to 2% per year.

Annual interest rates for coin deposits to the protocol or borrowing are identical for most large and time-tested platforms. Therefore, users can choose a product based solely on the overall usability of a particular blockchain and its software solutions. Thus, if a user, for example, frequently makes coin exchanges on Solana. And on the same blockchain plays some kind of P2E game, then the loan protocol as well, if needed. It will be more convenient for him to choose on the same blockchain.

DeFi borrowing is very easy and fast

This is an extremely convenient and fast process, which speeds up the already rapid movement of liquidity within the cryptocurrency sector.

When the market falls, traders using DeFi loans are forced to close their positions quickly. Because there is a danger of liquidation of collateral, thereby further accelerating the fall. When the market rises, it is also easy for traders to continue to create new buying volume. As the value of collateral assets rises, it makes it possible to increase the size of loans.

Similarly, borrowing protocols have already been used many times in market manipulations to collapse the rate of coins.

Is borrowing a unique advantage of crypto-assets or a dangerous trap?

The practice of borrowing against property or other valuables has been known since ancient times and is still widely used today. However, cryptocurrencies stand out among all other types of assets because of the incredible ease of obtaining borrowed liquidity. And complete freedom of its movement.

Owners of classic stocks in brokerage accounts might object. Because most brokerage platforms also provide credit leverage. Which is based on the capital available to this user. This is true, but there are two key differences that drastically distinguish web2 and web3.

For web2, the annual interest rate on borrowed brokerage funds will be significantly higher. And you will only be able to use the funds conveniently within the original platform. In the case of DeFi, borrowed funds are instantly deposited into the user’s wallet. And immediately can be used and transferred to third-party wallets and services without any restrictions.

When is borrowed liquidity useful?

The most valuable use of DeFi borrowing will be for those wishing to preserve the growth potential of their assets. Since its launch, crypto sector has been in a correction most of the time. Conversely, only briefly at its price peaks. Such moments are easy to miss if you sell an asset when you need dollar liquidity. And hope to buy it again later. And a rapid rise can happen in a few weeks or even days.

Borrowed liquidity can also be particularly useful for emerging market users with small deposits. Who strive to increase their crypto-assets portfolio step by step, if possible. For such category of users, the use of DeFi-protocols allows not to part with crypto-assets during an unfavorable market phase.

Of course, such tools carry a lot of dangers for inexperienced users. It is critical to keep statistics of all borrowings made. As well as to monitor your open positions. Which is based on the ratio of borrowed liquidity to the provided collateral. The safest ratio is no more than 1/3.

We recommend using only the least volatile of the coins, such as ETH or BTC, as collateral. Volatility of BTC has been steadily declining this year, and amid geopolitical instability has fallen below many fiat currencies and even the S&P500 index.

I have Bitcoin, how do I get liquidity and what are these risks?

The crypto sector’s flagship blockchain does not support smart contracts by default. Therefore, the first action for BTC holders on its main network would be to transfer Bitcoin to another network. One that supports DeFi-interactions. It is possible to move to another network in a decentralized way, using one of the bridges. Or by using a centralized exchange. In this case, the user will need to bring your BTCs to exchange, sell them, withdraw amount in main asset of destination network (for example, for Matic it will be Matic). And then exchange the asset back to the “wrapped” BTC on the new blockchain using any of DEX. At the same time, leaving some asset to the network itself to pay subsequent commissions.

Despite the many pros and little studied new ways of using borrowed liquidity. Its use remains extremely dangerous and involves risks every step of the way. Smart contract hacks, credit protocol oracle failures. Which can lead to accidental liquidations. Or the excitement and gambling addiction from feeling the possibility of getting “free funds” . This is just a short list of dangers awaiting users.

Deal volume in cryptocurrency market has fallen to values of December 2020. Our experts have analyzed what is happening in this industry and told us when volumes will start to grow again

In October, trading volumes on cryptocurrency exchanges updated the minimum since December 2020. The amount of transactions on trading floors last month amounted to $543 billion compared to $733 billion in September.

Main reasons for volume fall

The main factors that influenced the decline in trading volumes include falling cryptocurrency prices. And, as a consequence, a decrease in interest in popular and hype assets, such as NFT and DeFi. As well as external factors, primarily risks of recession in western economies on back of tighter monetary policy. And geopolitical tensions that have increased this year.

At the same time, according to our Crypto-Upvotes expert, it is impossible to talk about a decline in interest in cryptocurrencies. Despite the decreased trading volumes of retail players and low interest in social networks and media space. Blockchain technology itself and crypto-projects are actively financed by funds and institutional investors.

Market has been in a sideways trend for 137 days (4.5 months), our finance expert recalled. When the price trades in a limited range for a long time, investors get nervous, he said.

“Statistically, markets are in a sideways trend more than 75% of the time. You have to live with that. Buyers’ activity remains low on the background of risk aversion.” – explained our specialist.

Is “Crypto Winter” in hot phase? What will happen to cryptocurrency trading volumes?

Low trading volumes indicate that the cryptocurrency market is in the “crypto winter” stage.

However, the current situation in the crypto market cannot be called “crypto winter”. Unlike a similar period in 2018-2019, both capitalization and number of participants are much higher now. And development of blockchain products has not stopped, despite falling prices for cryptocurrencies.

Volume of investment in industry from outside also indicates normality of current market situation. And the volatility on individual top assets is quite enough to make money even in current periods of time.

Trading volumes will grow as volatility rises and prices of major crypto assets move out of the ranges they have been in since this summer. Once market participants understand the direction of further movement. They will immediately connect to it, which will allow trading volumes to grow according to our Crypto-Upvotes experts.

Even experienced investors sometimes find it hard to know which of the many young crypto projects is worth investing in. Our experts explain what kind of returns startup coins can bring. What is IDO and where their liquidity collections take place.

Raising capital for companies from a wide range of investors is a critical mechanism for creting new businesses in today’s economy. Crypto assets market is no exception and has its own formats similar to IPO model.

Almost everyone who has encountered cryptocurrencies knows what an ICO is and what happened to this market in 2018. In fact, ICO market is dead after the 2018 bubble, subsequently SEC severely restricted them. Statistics say that about 90% of all ICO ended up failing.

But having gone through a crypto winter, crypto market did not get rid of the natural need for liquidity inflows to nascent projects, which is where the new era of IDO and launchpad started.

To participate in IDO of a project, you will need, as in case of IPO, to get an allocation to buy tokens at a low price before their release on exchange. This is where the main investor profit is hidden. Launchpad already has quite a few – more than 70 platforms. As of today, almost $1 billion has been raised through them. And the average increase in investment was X25. It looks very good for investors, but there are big risks hidden here as well.

Analysis of IDO profits on several major launchpads

We decided to check some of major launchpads (Polkastarter and DAO Maker). And analyze their data based on Cryptorank data. Despite popularity of these platforms, we can immediately notice that each of them individually does not raise hundreds of millions of dollars. On average by platform, each project raises about $261,000. The average profitability on 2 platforms was 5%. In fact, this is the yield since the listing of project. In this material, we provide figures as of early June. When bitcoin was trading above $30,000 and cryptocurrency market was not at bottom as it is today.

Our Crypto-Upvotes experts decided to take a detailed study of one of most popular launch pads – Polkastarter.

The largest number of projects that raised funds on Polkastarter belong to the DeFi category. A total of 38 DeFi projects were placed on the platform. Of these, only 21% did not fall below listing price at end of day. Also of note are the indicators related to token price at historical highs (ATH). Indeed, if you held any new token placed on Polkastarter DeFi for an average of 21 days. You could hope for yields as high as 4,900%. But given the “survival rate” of projects, that would be a veritable casino with no chance of a fundamental prediction.

Most optimal IDO segment on Polkastarter turned out to be the projects serving the blockchain infrastructure. They showed lower returns on almost all metrics. However, with a more limited sample of 11 projects, 27% of projects traded above listing price as of early June, which is the best result across all segments of this platform.

Conclusion

It’s been 4 years since ICO bubble burst, 2 of which turned out to be very “depressing” for the crypto industry. On average, on the 2 largest launchpads, 73% of all projects today are trading below listing price. Thus, participating in project offerings on launchpads for long-term investors seems like a bad idea. Launchpads can be seen as part of a risky portfolio and sell project tokens for a very short period of time after they go to exchange. You should also be extremely careful when buying new project tokens. Once a project has been launched, you have little time to make a decision to sell. You run risks ending up with a token belonging to the same 73% of projects that are now selling below launch price.