The first quarter of 2023 provided much-needed relief to the entire crypto community — from investors and miners to businesses and developers — as Bit
The first quarter of 2023 provided much-needed relief to the entire crypto community — from investors and miners to businesses and developers — as Bitcoin’s (BTC) bull sprints helped crypto market participants recoup losses from prior investments.
However, not all sub-ecosystems managed to replicate the recovery with the same intensity. In particular, the decentralized finance (DeFi) sector suffered massive hacks, ultimately shaking investors’ confidence.
The DeFi ecosystem initially attracted investors seeking passive revenue streams, but 2022’s unforgiving bear market nullified many of the gains made from assets earned over time. As a result, both new and seasoned crypto entrepreneurs are now faced with the task of reinventing the DeFi wheel to offer sustainable investment opportunities as well as taking proactive measures to instill trust among investors.
Cointelegraph spoke on this topic with Julian Hosp, co-founder and CEO of Cake DeFi, taking a deep dive into what makes a DeFi ecosystem sustainable.
Cointelegraph: Crypto exchange volumes are recovering as a result of bull sprints, and nonfungible token volumes are up as well thanks to Bitcoin Ordinals — but volumes are still very low in DeFi despite promises of high yields. What went wrong?
Julian Hosp: On the contrary, the days of platforms touting sky-high yields are over. Today, we see yields adjusting at healthy, realistic, albeit much lower levels. We believe that this is actually a good sign, as it indicates that the industry is moving toward what we call “true DeFi.”
The corner of the crypto market that promised customers outrageous annual returns mainly attracted people looking to make a quick buck, those who were not necessarily true believers of DeFi.
Further, most of these lending platforms operated via a “black box” model whereby they offered limited transparency and control over customer funds. In these cases, customers do not have clarity on where the yields are being derived from or if their funds are being commingled with operational funds, which leaves them susceptible to mismanagement and misuse.
This was the case for companies like Celsius, Voyager, FTX and many others that imploded along with the market crash. Unfortunately, it took a fallout of this magnitude to clear out these bad actors.
The aforementioned collapses resulted in many mistakenly blaming DeFi as the cause when, in reality, these companies failed because they essentially repurposed the outdated big bank model under the guise of DeFi.
While DeFi has immense potential, more education is needed to quell the confusion and fear plaguing mainstream users. Additionally, it is crucial that crypto companies provide both assurance and protection to their users and their hard-earned money to build trust, especially in volatile times/during the crypto winter. Going forward, taking a transparency-first approach will become the gold standard for exchanges and custodians, and we expect customers to seek out CeDeFi [central decentralized finance] platforms.
CT: Gaining back investors’ attention often translates to rebuilding trust in the DeFi ecosystem. How does one achieve that in DeFi, considering that most projects are new?
JH: The spate of critical events that have occurred over the last year have rippled across the industry, sowing widespread distrust among investors. The industry has to rebuild that trust by going back to the roots of blockchain technology and putting the focus back on transparency. With that said, we believe that investors recognize that the issue is related more to traditional finance, not DeFi. However, more time and education are still needed to dispel confusion and rebuild that trust.
The string of bank collapses caused some people to lose confidence in TradFi and CeFi and to look for alternative ways to store and manage their wealth, such as DeFi. DeFi provides an alternative to CeFi by allowing individuals to access financial services and products without relying on traditional intermediaries, such as banks.
As a result, the DeFi ecosystem remains robust despite the volatile market. Liquidity does not leave DeFi. Even when prices drop, usage stays consistent. For instance, 1inch, one of the top DEXs on Ethereum, saw high volumes in the thick of the FTX crisis. Further, the global decentralized finance market size is expected to reach $231.19 billion by 2030, expanding at a CAGR [compound annual growth rate] of 42.5% from 2022 to 2030, according to a study conducted by Grand View Research, Inc.
CT: Investors are often advised to “do your own research” before trusting any project. What parameters do you recommend investors keep in mind?
JH: Investing in cryptocurrency can be a confusing and intimidating experience for even the savviest investor. With over 500 crypto investment platforms available, it is essential for investors to do their research before committing to one.
After deciding which type of crypto investment platform — a…
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