As cryptocurrencies begin to solidify themselves in the wider financial system due to the growing interest of previously wary institutional investors and the increasing integration of blockchain technology into our everyday lives, the way is gradually paving the way for a world where Where all money and financial products are digital. The driving force behind the eventual change will undoubtedly be decentralized finance (DeFi), which is slowly but surely transitioning from conceptual technology to commercial use. Stablecoins will certainly play an important role in this area as their inherent stability makes them more suitable for such applications. Indeed, in addition to private projects such as Tether and Paxos, global central banks are working overtime to launch their own CBDCs (Central Bank Digital Currency) to meet the popular demand for low-volatility cryptocurrencies. With 2021 turning out to be the year of DeFi, we can expect to see even more integration of this technology. This can only be good news for the cryptocurrency whose architecture makes it all possible: Ethereum.
So, what is DeFi anyway?
DeFi just means decentralized finance. It basically does what it says on the tin. It removes the need for middlemen in a range of financial transactions and agreements. Using the same blockchain technology at the heart of cryptocurrencies, two parties can enter into an agreement with an almost unlimited number of variables and conditions. There is no need for a third party originator or middleman as the technology itself creates a smart contract which is essentially self-fulfilling. For example, imagine you want to agree to pay someone 5 ETH if they do a certain job for you. Your 5 ETH will be settled, and money will be given to them on the blockchain as soon as the other party delivers at the end of the deal. This means that both the parties have complete peace of mind that the other will fulfill their promise and the best part is that there is no heavy duty to pay for this security. Potential applications go far beyond simple sales/purchase contracts, however, ranging all the way from personal loans to lease-rent agreements, crowdfunding and even prediction markets.
role of ethereum
The Ethereum blockchain and DeFi go hand in hand. In fact, it is hard to imagine how DeFi could have developed without it. This is because the Ethereum network is inherently easy to use and lends itself well to creating other types of decentralized applications beyond standard transactions. In fact, Vitalik Buterin, the creator of the number two digital currency, mentioned such uses in his original Ethereum white paper as early as 2013. As we have already touched on, the smart contract architecture makes all this possible. It is hoped that the advent of Ethereum 2.0 will improve the scalability of such applications, making them even more popular. With DeFi predicted to witness a sharp growth this year, we can also expect the new applications to be more user-friendly than the earlier versions which mainly focused on the technical side and neglected the UI/UX aspect . Despite the significant role the Ethereum network plays for DeFi, it is also worth noting that other platforms such as Polkadot are equally well suited for hosting DeFi solutions, a trend that may begin to emerge before 2021.
What does this mean for prices?
If we compare ETH to BTC, we see that the native cryptocurrency has lost over 40% from recent highs, while Ethereum is down by just over 35%. And although the current correction may only be short-lived, this difference in the extent of losses is statistically significant. Many analysts attribute this to the integral role of Ethereum in DeFi applications. Looking at the three month ETH chart below (taken from) Hurricane Benefit crypto trading platform), we can indicate a period of consolidation that is likely to reverse:
As we can see, since the initial correction in late May, Ethereum has been witnessing both higher troughs and peaks, indicating that a new uptrend is establishing itself. This is likely due to the usefulness of ETH beyond its use as a cryptocurrency. With the launch of the Ethereum 2.0 network, DeFi applications will become even more easily scalable, leading to increased demand from local people coin And thus pushing up the prices further.
If we look at the same time frame for the major DeFi altcoin Polkadot, we see that a similar pattern emerges:
Once again, the asset is clearly preparing itself for another charge as the end of May may see the start of a nascent uptrend. Like most altcoins, the potential upside for Polkadot is enormous as it has significantly higher volatility due to its more exclusive status than ETH. Although this means it can be hard to find brokers that offer it, a reliable, low-commission platform that supports both Ethereum and Polkadot is Hurricane Gain. Of course, this type of investment is only for those with a great appetite for risk, but the potential rewards are certainly very attractive.
But where do stablecoins come in?
Stablecoins play an absolutely vital role in cryptocurrency trading as low volatility coins, which can be used as an effective store of value for both profits and money, which you can use to present a suitable opportunity. Want to invest later? Other than that, however, they are absolutely indispensable when it comes to DeFi. Legacy cryptocurrencies are great ways to trade and invest money, but the same intense volatility that makes them so attractive means they are highly unsuitable for traditional deferred financial functions such as long-term loans and delayed payments. Think about it: people don’t want to expect to receive $10,000 (2.5 ETH in May this year) in 2 months’ time, only wanting to end up with $6,300 (current value of 2.5 ETH). This is why stablecoins will be central to alleviating the concerns of more at-risk users as the industry develops. For example, as a leading cryptocurrency broker, Hurricane Benefit Offers its customers highly attractive interest (up to 12% APR) on any digital deposit placed on its platform. This can represent a very attractive investment prospect for anyone who wants to get into digital currencies but is concerned about the typically heavy price volatility in this asset class.
we’ve only Just Begun
Whatever you think about cryptocurrencies now, there is no denying that they will be an essential part of our daily lives in the future. For most of us, this could take the form of DeFi technology and stablecoins/CBDCs. It may sound a bit daunting at first, but the advantages in terms of lower finance and transaction costs will make us wonder how we ever managed before. In the meantime, it would be a wise decision to gain some experience using stablecoins, as part of an active crypto trading and investment program or as a low-risk, interest-earning holding with a broker. Hurricane Benefit Offering attractive deposit schemes to the users. A new era of finance is approaching, with DeFi and stablecoins at its center. So get to grips with them now, and you’ll be ideally ready to reap all the benefits of this paradigm shift when it finally comes!