Throughout last year the world of Decentralized finance (DeFi) continued its growth until reaching a total locked value (TVL) of about 15,000 million dollars in December, a vertiginous growth if we take into account that at the beginning of the year that TVL was only 1 billion. In fact, for a few months trading volumes on certain DeFi exchanges exceeded those of some large traditional exchanges. And looking ahead to 2021, it is likely that they will continue to grow , despite the setback this week Elon Musk's announcement that Tesla was abandoning payments via Bitcoin.
Bitcoin itself and other digital currencies had followed a clearly upward trajectory in recent months, as buyers have found new uses for the assets and a wave of new market trends has gripped the financial world during the pandemic. But the continuous fluctuations in the value of cryptocurrencies have grabbed many headlines in recent years; The rise in currency prices to highs at the end of 2020 has already raised many questions about investor protection and the necessary regulations, especially in the wake of the GameStop affair , which has raised many alarms and announces some changes in the operation of the sector.
Regulation
The tension between ruling elites and civil society is one of the bases of cryptocurrencies, which are born from a desire for decentralization. So its existence in a regulated framework presents some challenges. "The basic and general question is that the innovation of digital assets has exceeded our regulatory framework ," Timothy Massad, a Harvard researcher and former chairman of the Commodity Futures Trading Commission, recently explained in an article in The New York Times.. "That is not unusual; there has always been a tension between innovation and regulation ”. One of the biggest debates among crypto-regulators gravitates around whether cryptocurrencies are commodities or securities, as well as the potential limitations of crypto retail for certain markets.
Cross border payments
Cryptocurrencies have become one of the most popular channels for expatriate workers to send payments to their families in their home countries without having to deal with costs and penalties. Companies like Ripple have bet heavily on this market but, due to its dispute with the United States Securities and Exchange Commission (SEC), Ripple has lost important partners such as MoneyGram, one of the most important payment platforms for migrants. However, since the dispute with the SEC, 100% of the clients of its currency (XRP) are located outside the US, mainly in Southeast Asia, because regulators in Singapore and Thailand have classified XRP as a digital asset. In addition, the sector is also booming in the Middle East and North Africa, as well as in Saudi Arabia and India.
The evolution of TNF
Ripple CEO Brad Garlinghouse recently declared that non-fungible tokens (TNF) have much more future than some predict . He points out its many possibilities for use, especially when it comes to digital collectibles. "When it comes to art, collectibles, music, etc ... there are many very convincing arguments in favor of using this technology," he said. The growth of transactions of this type increases the volume and diversifies the possibilities of cryptocurrencies, as well as opening them to a new audience. XRP is already working to ensure that its platform will be able to support TNF.
Central banks
China, Cambodia and the Bahamas are some of the countries that have already launched digital currencies through their central banks in recent months. In the United States, the Federal Reserve is currently working with MIT to explore the viability of a digital currency. Some experts point out that the adoption of digital currencies by the world's governments will help stimulate more efficient cross-border transactions, although a portion of users still prefer independent currencies.
Support from large financial institutions
Throughout 2020, large institutions such as JP Morgan and Standard Chartered were building DeFi solutions for their clients, some have even begun to regularly cover part of their investments in cryptocurrencies. Institutions including from Citi to Deutsche Bank; a trend that should accelerate in 2021 as many banks begin to go public with specific Cryptocurrency development plans. That should further catalyze the entry of traditional companies from the demand side. Although investment banks have been the most active players so far, experts suggest that in the future we must be vigilant with private banks.
