The DeFi sector is currently the most popular in the entire cryptocurrency industry and can continue to grow strongly. Just like in summer 2020, there is currently a rush of new types of apps that represent traditional financial services on the blockchain. The price increases of the corresponding tokens are considerable.
For example, tokens such as AAVE and 1INCH increased by more than 40% (US dollar trading pairs). Other tokens increased in price as well. RUNE (Thorchain) — a 28.6% increase, and UNI (Uniswap) — a 35.4% increase in the last seven days.
The DeFi tokens, like other altcoins, benefit from currently unstable Bitcoin, which is still traded for over $30,000. The capital invested in DeFi apps recently exceeded the $25 billion mark again.
What Are DeFi Projects All About?
DeFi is an abbreviation and stands for the term ‘Decentralized Finance’. So as you can guess, these are apps on the blockchain that offer traditional financial services. These include, for example, lending providers that enable the issuing of loans on the basis of cryptocurrencies.
Borrowers can borrow money quickly and easily in cryptocurrencies and receive fiat, while lenders can collect interest on their loans. The associated governance tokens rose sharply in the last week, so, as already mentioned, AAVE rose by almost 50%. Other projects include decentralized stablecoins such as DAI from MakerDAO or xUSD from Haven Protocol.
Most of these apps run on the Ethereum blockchain, as this is where the network effect is greatest. This means that currently, most users and also most developers are interested in the Ethereum ecosystem. If the upgrade to ETH 2.0 goes smoothly in the coming months, Ethereum could strengthen its position on the market.
Why Are DeFi Projects Considered Risky?
Whenever there is an opportunity for great returns, risks usually occur. In the past, there have already been attacks on various DeFi protocols, during which users’ funds were stolen. So-called ‘rug pulls’ are also possible. Investors should always be aware of these risks and act accordingly.
The fact that DeFi projects are gaining increasing popularity is no coincidence, given the global situation on the economic/financial markets.