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All about DeFi: use cases, advantages, disadvantages and a look at Bitcoin DeFi

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All about DeFi

What to expect in this article?

Learn about:

  • What is DeFi?
  • What are the current areas where DeFi is working?
  • Examples of companies that are working in each of the DeFi areas
  • What are the advantages and disadvantages of DeFi?
  • Recent issues in the DeFi space
  • What is a Bitcoin DeFi?
  • What are the advantages and disadvantages of Bitcoin DeFi?
  • Some companies in the DeFi space

The hype around Decentralized Finance (DeFi) has been at full swing in the crypto media recently.  What exactly is a DeFi? Let’s start at the beginning.

What is DeFi?

What is DeFiFinancial services broadly include banking, lending and stock markets. These markets are controlled by some of the world’s biggest institutions. The same institutions that were at the center of the 2008 market crash. That crash gave birth to Bitcoin blockchain (or should we say blockchain and bitcoin).

Now, blockchain is aiming to disrupt that very financial structure with Decentralized Finance, DeFi.

Decentralized Finance facilitates the same financial services without a centralized institute.  Decentralized finance gives the individual ability to be their own bank. The contracts that used to take place in a bank can now take place in an app on your smartphone without ever leaving the comfort of your home.  

Decentralized Finance is financial services on blockchain with minimal or no human intervention where the individual’s race, color, income level, credit scores do not impede them from getting the services on par with everyone else. Everyone is held to the same standards.

You can right now create your own wallet in seconds and start accepting payments from your customers. You can right now send money to whoever you want to anywhere in the world without having to stand in a virtual queue for weeks.  You can avail a collateral based loan without making rounds to a bank or institution and without getting screwed with fees and hidden APR rates.

Decentralized Finance at this time covers four aspects:  Stablecoins | Crypto Lending services | Decentralized Exchanges | Tokenizing assets

Stablecoins

cryptocurrencies that are pegged to fiat currency, generally to the US Dollar, to provide much needed stability to the crypto market.  Thanks to the stablecoins, many other services can now be brought to the mainstream as the volatility aspect is addressed through stablecoins.  Volatility continues to be a big problem in the crypto space and stablecoins are bringing the much needed stability and make the cryptocurrencies useful for mass adoption.

Examples

  • USDC:  US Dollar Coin is introduced by Circle and Coinbase.  
  • USDT: US Dollar Tether is probably one of the earliest stablecoins and one that is constantly enveloped in controversy regarding having enough reserves to support the minting of new coins.

Crypto Lending services

As of 2019, Crypto Lending has crossed $4.25 Billion in loans.  At this time, much of these loans are based on collateral, that is, you can use your crypto holdings as collateral to get a loan for a great rate compared to the market.  These loans are usually simple and do not include shark behavior that we see in the traditional lending models. As the space gains more traction, we might see loans provided based on individual’s credit score.

Examples

  • Celsius Network: Probably one of the greatest companies in the crypto lending space. They pay about 8% on some of the cryptocurrencies deposited on their app.  They pay about 4% on Bitcoin deposits. 
  • MCO:  Crypto.com offers crypto lending, debit card services and they even pay great interest on deposits.  At a time when the broader economy is going into negative interest rates – it is refreshing to see deposits yielding interest. 

Decentralized Exchanges

Most exchanges are run by an institution. This is true even for crypto exchanges. However, a new  class of exchanges are on the rise that do not rely on humans to transact. They are called Decentralized Exchanges or DEx for short. Usually a Decentralized Autonomous Organization (DAO) executes contracts based on the code.  Most DEx’s do not need users to verify their identity which has put these exchanges under scrutiny.

Examples

  • Binance DEx: Binance is #1 DEx in the market. “Binance DEX takes security to a whole new level. Peer-to-peer transfers and trades mean virtually zero exposure to security threats.”  DEx are usually lightning fast compared to more traditional exchanges.

Tokenization platforms

Blockchain provides a unique opportunity to convert any asset into token.  It could be a real estate property or a contract of future performance.  You can cash in on any type of asset on blockchain by tokenizing these assets/contracts.  This opens doors to massive liquidity for companies.  For instance, a company with 5 machines of $100,000 each can turn one of those machines into tokenized assets and raise capital without taking out a loan. The proceeds from that machine can then be distributed among the token holders that represent the ownership of that asset.

Examples

  • Dream Fans Shares: Spencer Dinwiddie turned his contract into 90 tokens to convert his sports contract into immediate liquid capital.  The holders of these tokens were promised yearly interest payments.  The holders of these tokens can then sell them if they are in need of cash.  

What are the advantages and disadvantages of DeFi?

Advantages

Access to all:  Barrier to entry will be eliminated for people to avail banking and financial services.  There are about 2 billion people who are denied banking services because of many barriers to entry – DeFi can eliminate them.

Global banking services: Be your own bank and start accepting payments or send payments through DeFi.  Most DeFi platforms do not have any restrictions on user participation.  Obviously, KYC verification is required by these platforms to comply with the Banking regulations.

Disadvantages

Not all DeFi services are created equal:  for every genuine DeFi service out there, there are multiple scammy imposters.  The onus of due diligence falls on the customer in this case. 

Collateral:  Most services now are based on a collateral system (except for creating your own wallet to accept payments, etc.,).  Unlike a bank that will lend you money if you have a good credit score and a decent income source, crypto lending relies on you being able to deposit a collateral to secure a loan.  Some might argue that if they had collateral – why would they need a loan?  There are few services that are sprouting that follow the traditional banking model where individual’s credit worthiness is taken into consideration.  

Ethereum is the most popular DeFi platform, so far

EthereumMost DeFi platforms in the market are built on Ethereum blockchain.  MakerDAO, probably one of the most popular DeFi projects, is built on Ethereum as well.

Many up and coming DeFi projects rely on Ethereum as well. Bidao, a new ICO, aims to build the first ever DeFi on Binance blockchain.

DeFi addressable market runs in trillions of dollars and if DeFi succeeds – it will take crypto to the next level of mass adoption.  

One of the issues right now with Ethereum based DeFi platforms is the lack of liquidity.  Many projects are looking to address this issue by bringing Bitcoin to DeFi. 

DeFi comes to Bitcoin

As discussed earlier, Ethereum is one of the most popular networks for DeFi services. Crypto experts are working on bringing the same DeFi services onto Bitcoin blockchain.  The solutions are being created to execute smart contracts on Bitcoin blockchain to make DeFi work.

What is Bitcoin DeFi?

The new hype in the DeFi space is Bitcoin DeFi. That is, executing the smart contracts related to operating Decentralized Finance Apps on the Bitcoin network.

Ethereum is made popular for its ERC20 token that can embed smart contracts.  Bitcoin has historically lacked the smart contract feature, although many solutions have been building layers on top of the Bitcoin network.  

Now, DeFi that was mostly limited to Ethereum (with MakerDAO leading the dominance) is coming to Bitcoin.

Projects that are bringing DeFi to Bitcoin

These are some of the projects in works that are bringing DeFi to Bitcoin network.

tBTC

tbtcSimilar to WBTC, tBTC is backed by 1:1 BTC.  “tBTC, a project developed by Summa, Cross-Chain Group, and Keep Network, lets BTC holders safely convert their BTC into the ERC-20 TBTC token and vice-versa at any time at a rate of 1:1, with no signoff needed from an intermediary,” the tBTC site explains.  At the time of this writing, Ethereum’s biggest DeFi players, that is, MakerDAO, Compound and UniSwap have all joined forces with tBTC.  

WBTC

WbtcWrapped BTC (WBTC) “delivers the power of bitcoin with the flexibility of an ERC20 Token.”

Bringing BTC to Ethereum will make it possible to leverage the humongous volume that Bitcoin enjoys onto Ethereum applications like DEx’s and DeFi applications.  The arrival of BTC volume will help the DApps built on the Ethereum network to thrive.

Liquality

liqualityLiquality makes it easier to trade cross-chain between bitcoin and ethereum based tokens. They describe their project as “Our atomic swaps enable direct and risk-free trade with partners, eliminating the need for costly exchange services that are preferred targets for hackers.”

Atomic Loans

Atomic LoansAs stated earlier, Crypto Lending is one of the facets of DeFi.  Atomic Loans is looking to bring the crypto lending directly onto Bitcoin through Atomic Loans.  The Mainnet is already live.  You can use your Bitcoin as collateral to get a loan in Stablecoins.  This way, you meet your liquidity needs without selling your Bitcoins.  You will be in control of your private keys at all times. There is no need to verify your identity, only ownership of your Bitcoin.

What are the advantages of Bitcoin DeFi?

Bitcoin DefiBitcoin is the unquestionable king of crypto.  It has one of the strongest networks for any crypto.  Any DApp that runs on Bitcoin gets the security strength of the entire network.

Strong network:  Bitcoin blockchain is arguably the most secure PUBLIC network on the planet.  The FBI and CIA may have stronger computers in their basements but they are not available for the public to build secure solutions on.  Bitcoin blockchain is one of the world’s strongest networks that anyone can access to build products on top of.

Liquidity:  Bitcoin enjoys the largest trading volume of any trading pair and bringing DeFi to Bitcoin will help bring liquidity to DeFi DApps.  

Brand visibility:  By now almost everyone in the world with a smartphone has heard about bitcoin.  They may even have a nickname for it…internet money, people’s gold, and others.  We cannot say that about Ethereum.  Brand visibility helps bring masses to a familiar service on Blockchain. DeFi is a great place to do that and bringing DeFi to bitcoin is a sensible way to do it.

Conclusion: More than just the hype

DeFi is definitely one of the most exciting things to come to crypto.  It has the hype factor of the ICO, but unlike ICOs, the utility around DeFi is not going to be a short-lived one.  

As the inflation in the traditional markets takes its toll people will be looking for alternative investments.  However, like Gold, they don’t want to invest in an asset that does nothing.  With DeFi, you can start earning interest or use it to raise capital without disposing of your digital assets.  

More importantly, DeFi is going to change the core structure of the financial system and may one day put the power back in the hands of customers so that their financial destiny doesn’t rot at the mercy of institutions.

Thank you for reading and sharing this article. Stay safe and healthy!

IMPORTANT DISCLAIMER

Everything in this article is an opinion, not an advice of any kind. This material has been prepared for general informational purposes only and it is not intended to be relied upon as accounting, tax, investment, legal or other professional advice. Please consult with a professional for specific advice.

We do not endorse or guarantee the accuracy of the information and claims made.

All product and company names are trademarks™ or registered® trademarks of their respective holders. Use of them does not imply any affiliation with or endorsement by them.

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This is What Non-Bitcoiners Think About Bitcoin

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Bitcoin believers

There are two types of people in this world: Bitcoiners and non-bitcoiners.

Many non-bitcoiners stay that way because they have come to associate Bitcoin with certain elements of the society. 

Here is a short list of things non-bitcoiners associate Bitcoin with and whether these allegations have any validity.

Money laundering

moneyBitcoin is criticised to be used for many illegal activities including money laundering. 

Can Bitcoin be used for money laundering?  Sure.

So can gold or cash or you name it.  

Anything of value can be used for money laundering, however, only one of them can be actually tracked forever.

To many people’s surprise, Bitcoin is the only asset among many that is the worst medium to use for money laundering.

Terrorist funding

Haters say that bitcoin is used by terrorist groups to avoid being tracked. 

Fools be those who think Bitcoin is completely anonymous.  

In fact, physical cash is much more anonymous than any medium of exchange out there.

Drugs

Bitcoin was (is) used to buy and sell drugs. 

Bitcoin did not create a single drug and it did not create commerce for drugs either. The drugs commerce has been in existence before bitcoin.  What bitcoin did was create this false illusion that it is anonymous money.

To the dismay of many those who thought they were being smart have etched their dealings on the blockchain for anyone with the right tools to find out.

Dark web

darkwebYes, the dark web has made Bitcoin popular.

Silk Road, illegal weapons, transferring money without going through banks or other legal entities, all of these have colored Bitcoin as Dark Web money.

However, once people understood the myriad of applications that bitcoin and blockchain can help with, the dark web allegations have faded.

We would scorn anyone suggesting that the internet should be banned because there is illegal stuff going on (dark web lives on the internet too).

However, these very people would call for a ban on Bitcoin without understanding that Bitcoin is the next phase of the internet’s evolution.

Gambling

Gambling cryptocurrencyGamblers love to squander their wealth. And those who dabble with Bitcoin with their life savings are no better than gamblers.

This has some truth because there are no guarantees that Bitcoin will succeed (although one could argue that it has already succeeded in bringing blockchain to the consciousness of mainstream).

As such, those putting money in bitcoin understand that they could lose their investment.

While many invest in bitcoin in the hopes of getting rich, there are few who invest in it to own a piece of technology and be part of the history in the making. 

In that sense, Bitcoin is way different than gambling.

Is Bitcoin the panacea?

While Bitcoin is far better than the existing fiat system, we do not think Bitcoin as the panacea.

We believe that Bitcoin will build bridges and connect the world which was deprived of access to financial inclusion and in doing so it will become part of the world financial ecosystem.

It will not replace the fiat system, rather, it will make it more accessible.

Thank you for reading and sharing this article. We appreciate you.

Stay safe and healthy!

Top 5 Cryptocurrencies 2020

IMPORTANT DISCLAIMER

Everything in this article is an opinion, not an advice of any kind. This material has been prepared for general informational purposes only and it is not intended to be relied upon as accounting, tax, investment, legal or other professional advice. Please consult with a professional for specific advice.

We do not endorse or guarantee the accuracy of the information and claims made.

All product and company names are trademarks™ or registered® trademarks of their respective holders. Use of them does not imply any affiliation with or endorsement by them.

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Factors adding gasoline to the Bitcoin shortage fire

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Bitcoin shortage

Bitcoin’s creation and its subsequent proliferation may have all been planned for a long time, this is the outcry of many conspiracy theorists.  

These conspiracy theorists also believe that whistle blowers are mere plants to help prepare the world for what’s coming.

One of their theories is that the end of physical fiat was planned a long time ago, however, the transition of physical fiat to digital fiat needed a catalyst to drive the conversation.

Either by meticulous design or by sheer coincidence – Bitcoin came to life in 2009.

We personally think that Bitcoin was designed by liberals who believed a ‘fair world’ was possible.

The invincibility of this groundbreaking technology meant that the forces that were working on doing away with physical fiat had a runway built for them.

So, the rhetoric has now changed from ‘Bitcoin is for anti-social elements’ to ‘Bitcoin is the currency for the visionaries’.

Why is that backdrop of conspiracies and layout necessary?

Because, irrespective of the underlying reasons the rhetoric has changed and it has changed for good.  This means, as the physical fiat follows the path of extinction, Bitcoin – the king of digital currency, will see a lot of demand.

We were warned a long time back that there will not be enough bitcoin in the world for everyone to buy.

Some studies say that owning .28 Bitcoin will guarantee you a seat in the top 1% bitcoin holders in the world while others say you need 5 bitcoins to claim the top 1% in the Bitcoin rich list.

Point is, even if you have all the fiat in the world, there is a limit on how much bitcoin you can buy.

When people who want to buy bitcoin are ready to pay any price while those who own the fractions of it are unwilling to sell it – the prices have only one way to go: UP.

 

The strategic moves into Bitcoin from MicroStrategy, Square, GrayScale, Fidelity and a host of billionaires who actually know something about money and finance is a tell-tell sign for the rest of the world.

Whether you want to get into Bitcoin to own a piece of technology itself, or to hedge against the inflation, or simply to use it as ‘digital gold’ that you can take with you, any and all of these reasons are good enough to look into Bitcoin.

If you had told us last year that a public limited company will convert its cash reserves into Bitcoin we would have laughed at you, but that is precisely what has happened.

As a result of converting fiat reserves to Bitcoin, the stock price of MicroStrategy saw an immediate boost which was as big as the reserve itself.

Do you think other public companies will stay on the sidelines for long?

When a legend like Paul Tudor Jones says ‘Bitcoin is the fast horse’ to bet on against inflation and he himself invests 2% of his portfolio, how long will it take for other fund managers to take note?

Add to this the demand from retail investors in the form of millennials, who are also set to inherit some $60 Trillion dollars from the baby boomer generation in the coming decade.

Conclusion

We personally think the goldilocks moment for Bitcoin has arrived.  It has the perfect combination of ‘scarce supply’ and ‘growing demand’.  It also has the added elements of adoption and ‘nascentness’ working in its favor.

These factors alone make Bitcoin one of the best investment assets of the century, in our opinion. 

We have been investing in Bitcoin using dollar cost averaging.  We don’t go selling our home or taking on insane loans to invest in bitcoin, rather, we invest $100 here and $100 there.

Before you invest your money into bitcoin or cryptocurrencies, spend some time understanding what Bitcoin is and why it is important in taking the world from the centuries old fiat system to a brand new global currency system.

In our personal view, Bitcoin will become one of the best assets to hold by the next halving.

Thank you for reading and sharing this article. We appreciate you.

Stay safe and healthy!

Top 5 Cryptocurrencies 2020

IMPORTANT DISCLAIMER

Everything in this article is an opinion, not an advice of any kind. This material has been prepared for general informational purposes only and it is not intended to be relied upon as accounting, tax, investment, legal or other professional advice. Please consult with a professional for specific advice.

We do not endorse or guarantee the accuracy of the information and claims made.

All product and company names are trademarks™ or registered® trademarks of their respective holders. Use of them does not imply any affiliation with or endorsement by them.

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Why this bull run has no precedence? ONE key metric to rule them all

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bull run 2020

Everyone is singing the praises for the bulls’ arrival in the crypto space.

Some say that 2020 will mark the biggest bull run in cryptos’, albeit short, history.  

We are already in October so we doubt any fireworks will take place now since there is a lot of uncertainty about the US elections.

Add the uncertainty around the stimulus bills, unemployment trends, soon to be lifted forbearances and the list goes on.

2020 still has another 2.5 months to go but most of these uncertainties will take a while to show their true impact.

For instance, what will a Biden presidency mean for the economy and cryptos?  

How many people will be forced to sell their homes once the forbearance’s are lifted?

What happens if the next stimulus bill does not pass through?

When will the vaccine become available?

These are some of the unique situations that we have no precedence for. Do not let anyone convince you that we know what’s going to unfold, because no one does.

Yes, everyone has theories, like the ones we are presenting here, but that is all they are: theories.

The BIGGEST metric that crypto community is not considering

We are no economists nor can we run any fancy charts to impress a point on you.  

We are just good observers and have common sense to deduce a few things based on data.  

For instance, between 2007 and 2010 consumer spending dropped by an overall .2% and we know what that meant for the economy.

Personal consumption expenditure

In 2020, people have literally cut down on their spending.  Some of it is forced due to the restrictions imposed by external forces and most of it is self imposed.

I am sure the spending on marijuana, liquor and food have gone up but what about other spending?

2020 also saw a spike in the savings balances.  

Economy is not stimulated by people hoarding their money. People need to exchange value for the economy to thrive.

What happens to the spending behaviors when the true stats around evictions, lost jobs (that are not coming back) and small businesses that are shutting down permanently are out?

Our guess is that people are going to be weary of spending money in the short to medium term. If we were forced to pick a timeline – we would say about 12-16 months (assuming we get a vaccine in Q1 2021).

When is the next bull run? 

Based on what we have seen in 2007 through 2010 and observing the consumer spending habits in recent times, we think that Bitcoin (and cryptos) will not find their true peak until next halving.

We know this is not what you came to hear.  

If the bull run in your mind is hitting the 2017 highs then we do not think you have to wait until the next bull run.

If the bull run means a $100,000 bitcoin then we stand by our opinion on when that is going to be.

A case for bull run

In spite of what is going on in the street, following factors are acting as strong bull market signals for the crypto space. 

Hype: Crypto space (specifically Bitcoin) has been gathering a lot of steam in terms of brand awareness and mass penetration.  This is great for the long game.

Adoption: More than ever, private and public enterprises are becoming serious about bitcoin and underlying blockchain technology.  What is good for bitcoin is good for blockchain and vice-versa.  MicroStrategy investment, Paul Tudor Jones getting involved with bitcoin are some examples.

Tech explosion: Crypto space is home to some of the brilliant minds in the tech space. Add Big Techs interest in the crypto space and you have a perfect recipe for monumental shifts in crypto perception. Tech giants like Microsoft, Google, Twitter, Facebook are all getting involved with blockchain and cryptocurrencies in some shape or form.

Retail demand: More and more retail investors are looking for alternative investments and they are waiting on the sidelines to get involved with Bitcoin.  As soon as companies like Fidelity or other brands offer crypto investment through retirement plans – there would be a massive influx into this space.

DeFi: DeFi in its current state might be infested with shittty projects but as a concept and technological shift to turn the current banking system upside down – it holds great potential. Any demand to DeFi brings more demand to bitcoin, ethereum and blockchain in general.

Conclusion

The debate around when is the next bull run will hinge on how the market recovers from this pandemic. How soon will we get the vaccine and how many of the lost small businesses and jobs are we going to resurrect?

From a macro perspective, Bitcoin and few select cryptocurrencies will continue their upward trajectory so if you looked back to 2020 five years from now, you might think bitcoin was on sale.  

Question is: how many people have that kind of patience?

Thank you for reading and sharing this article. We appreciate you.

Stay safe and healthy!

Top 5 Cryptocurrencies 2020

IMPORTANT DISCLAIMER

Everything in this article is an opinion, not an advice of any kind. This material has been prepared for general informational purposes only and it is not intended to be relied upon as accounting, tax, investment, legal or other professional advice. Please consult with a professional for specific advice.

We do not endorse or guarantee the accuracy of the information and claims made.

All product and company names are trademarks™ or registered® trademarks of their respective holders. Use of them does not imply any affiliation with or endorsement by them.

 

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