Within the world of blockchain, there is endless talk about the importance of decentralization. But there is a by-product from the DeFi boom that is little talked about.
The gradation of the innovations we’ve seen over the past decade is an inevitable result – and when implemented correctly, can benefit companies and individuals.
For example, it is now possible to buy a small fraction of Amazon stock, potentially making it more affordable for millions of investors. With a share price now over $3,000, this could be a high barrier to entry for most.
The explosion in non-fungible tokens has created an urgent need for such fractionation to apply to crypto collectibles – especially when NFTs are selling for hundreds of thousands, if not millions of dollars.
A significant number of NFTs are now priced at a price that is much higher than the average customer. Fractionalization paves the way for these retail investors to engage with the market rather than remain passive within the DeFi ecosystem. Better still, it unlocks greater levels of liquidity, which we all know is vital to its smooth operation.
remembering our roots
Sometimes, it is all too easy to overlook the fact that bitcoin was created in response to the 2008 financial crisis – ultimately giving people a way to control money for themselves and to create a more transparent and democratic economy. While the big banks were kicking people out, crypto was making a way to welcome them.
As the total market cap of all cryptocurrencies recently reached $2 trillion, and the total value locked in the DeFi protocol reached $90 billion, history is in danger of repeating itself. Fractionalization gives everyone the opportunity to enjoy the amenities this vibrant ecosystem has to offer – allowing us to mutually own assets that they would not have otherwise been available to buy. And if fractionality is removed from the equation, only the wealthiest people will be able to benefit from DeFi’s functionality, which will significantly limit the depth of the market.
But let’s also take some time to think about this from an adoption standpoint. If more people are given the opportunity to show interest in a specific product, awareness of its value can increase. Right now, the NFT space is dominated by whales who decide what they want to spend their disposable income on – and this raises fears that the industry explosion is unsustainable.
Fractionalization gives the public a chance to decide which projects are truly beneficial to an ecosystem, foster innovation and generate passion. It’s the difference between a top-flight football match watched behind closed doors by a wealthy investor, and 90,000 fans with season tickets getting a chance to enjoy the action.
properly addressing the variation
It is hard to overestimate the importance of cross-chain bridges in helping DeFi reach its full potential, but achieving transparency in how these bridges are designed is by no means easy and for all of us. should be a matter of concern. Will they be on chain or off chain? How are validators selected? And how can we ensure that they always act in our best interest?
On-chain bridges are the best option here as they can help achieve complete transparency in dealing with the concerns of both users and developers. But there are obstacles that lie ahead. What happens when a large number of users exceed the bottleneck capacity of the connected blockchain? In this case, a bridge can simply transfer the problem from one network to another without ever solving the underlying problem.
Imagine if the crypto world had an infrastructure that could reasonably distribute the number of users through different chains – eliminating this problem entirely. This would be an achievement equivalent to ensuring that during rush hour passengers are spread evenly across all trains in a network, eliminating delays and providing seats to all.
Such an approach would mean that the number of users needed to create a bottleneck on the blockchain would have to be very high. As a greater variety of digital assets emerge and the user base in the network explodes, such technological advancements are becoming an essential feature of DeFi’s future – reducing costs on congested chains while increasing available market liquidity. paves the way for reduction.
Right now, the promise of division is being held back by the highly fragmented nature of the blockchain industry. The various chains that exist are perhaps best compared to smaller islands in a vast ocean. Just as air travel has made our world smaller, creating vital connections between different countries, we need to build infrastructure that makes it easier for travelers in the crypto world to move from one platform to another.
True financial freedom lies in cross-chain integration – allowing people to combine an endless number of digital assets through a plethora of different on-chain.
The views, opinions and opinions expressed here are those of the author alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.
Andrey Veliyo is a former Cisco Certified Network Professional who has worked in IT since 2002, primarily in data center architecture, networking and switching. Andrey entered the crypto industry in 2015, building mining farms before delving into technological breakthroughs such as crypto payment integration with point-of-sale devices, cyber security and non-custodial multi-chain crypto wallets. Their current project, APYSwap, is a protocol for the decentralized trading of token vault shares.