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DeFi ‘Genie Is Out’ and Is Set For Growth in 2021

Sead Fadilpašić
Last updated: | 6 min read

In 2021, decentralized finance (DeFi) might see stronger interest not only from individual users but from institutional investors also, as the environment for this nascent sector is still favorable, according to industry players speaking to Meanwhile, regulation might slow down this expansion.

Source: Adobe/zef art

“It appears to me that 2021 will be a year of enlightenment regarding cryptocurrency,” Bo Oney, Chief of Compliance of Bitcoin ATM Network Coinsource, said. “As the appeal of DeFi grows, you will see adoption and utility permeating as the main trends throughout 2021.”

The macroeconomic trends of low and even negative interest rates globally will mean that DeFi will be increasingly relevant to people, argued Monica Singer, the South African Lead for Ethereum (ETH)-focused major blockchain company Consensys, and not just to “the tech and financial nerds.” Another trend Singer sees picking up steam in 2021 is institutional money and professional traders increasingly wanting exposure to DeFi.

“As long as the legacy finance world keeps breaking, people will be pushed in our direction,” she said, adding that the key challenges will be education and simplifying the user experience.

Meanwhile, according to Will Liu, Head of decentralized data marketplace SAGA, DeFi passed the dramatic growing stage at the end of 2020. In 2021, it will be “a more standardized and easy-to-use form” and “a nice option for individual investors for a long time.”

While DeFi is still in its nascent phase, said Konstantin Richter, CEO and Founder of Blockdaemon, certain growing signs are indicating that it’s beginning to enter a phase of maturation. Therefore, a “particular area of interest will be whether the DeFi space can follow the lead of the crypto market and attract greater institutional investment,” he said.

Institutional adoption of crypto has proven to be a significant driver for adoption by retail users, and if DeFi can “mature and manage to attract similar mainstream investment, there are likely to be huge opportunities for early adopters of the technology in the coming year.”

Anthony Lauriola, Chief Operating Officer at blockchain portfolio company Dan Holdings, also said that DeFi will begin to define itself in 2021, with more industry players likely incorporating some element of DeFi into their existing offerings. “[Last] year DeFi established itself but [this] year, DeFi will likely see steady adoption” as it matures. “Currently, DeFi has a lot of potential to make common financial processes like lending, borrowing, and earning interest more accessible to emerging markets,” he said.

Ilia Maksimenka, Founder of digital payment platform PlasmaPay, argued that, while big news in 2020, DeFi’s “overnight success story has been years in the making.” The wider industry began to notice it and understand its potential in 2020. “Now that the genie is out of the bottle we expect the sector to rapidly grow in strength [this] year,” said Maksimenka. He added that the coronavirus pandemic has accelerated the move to a more decentralized world.

Hybrid models and coexistance

Furthermore, Erick Pinos, Americas Ecosystem Lead at Ontology, argued that “trends in the blockchain and crypto industries in 2021 are likely to be anchored around the growing demands of the decentralized finance space.” DeFi will continue to stay prominent throughout this year, said Pinos, adding that “a leading factor of what is popular in crypto is the opportunity for companies and users to make money.” He said:

“With decentralized exchanges, lending, insurance, derivatives, mutual funds, and more, the opportunities to make money in DeFi are endless. Thus, most transaction volume and product development over [this] year will likely continue being centered around DeFi.”

Additionally, “DeFi will continue to iterate at a rapid pace,” argued David Moss, Founder & CEO of StrongBlock. While 2020 was a year of experimentation, “there’s enough of a firmly established set of what works now that, in 2021, we’re going to start seeing hybrid ‘DeFi plus’ models of DeFi with consumer and enterprise components,” while governance will start to become more important as well.

As DeFi’s frenzy last summer was “just a glimpse of what is to come,” Jack O’Holleran, CEO and Co-Founder of SKALE, added, “we’ll see DeFi grow into more mature use cases.” We will likely see a 10X rise in the current Total Value Locked (over USD 15bn) and more specifically in Total Value Staked across proof-of-stake networks, he said.


However, as the DeFi boom continues on its upward momentum, what will be crucial this year is whether it can “stake its claim in the realm of traditional finance and coexist with traditional banking institutions for a more integrated and open financial ecosystem,” argued Amrit Kumar, President and Chief Scientific Officer of blockchain platform Zilliqa.

He added that “building a comprehensive ecosystem for applications and enterprises alike will be key as DeFi continues to further cement its place in the finance space.”

Meanwhile, Philippe Bekhazi, CEO of stablecoin platform Stablehouse, added that 2021 will be a seminal year for already established protocols, while Jonathan Zerah, Head of Marketing at private messaging application Status.IM, finds that this year, DeFi will shift from borrowing and lending over to transacting.

Regulating DeFi ‘cowboys’

A point most of the industry insiders we talked to agree on is that regulation is inevitable – it will be challenging, but also beneficial, some argue.

Even though DeFi is “completely outside of the regulated financial system […] the laws on the books of governments still apply,” according to Brian Gallagher, Head of Business Development at Partisia Blockchain.

Once comprehensive regulation comes to DeFi, “processes in the industry will likely slow, which will be a significant challenge, argued Rachid Ajaja, CEO and Founder of AllianceBlock.

However, while DeFi will be one of the most important drivers behind the industry in 2021, he said, this year will also “likely see a large focus on regulation and compliance that facilitates bridging the worlds of traditional and decentralized finance,” which will present “a significant and arguably the biggest opportunity in the field.”

Monica Singer also said that eventually, there will have to be regulation of those products that could bring risk to investors who aren’t knowledgeable on the matter. “I hope that we can see innovation that will not be arrested by regulation too soon,” she said.

Meanwhile, tech entrepreneur Andrew Kessler said that he doesn’t think regulators will accept DeFi offerings in their current form, but that we’ll see “evolution and adaptation as regulators respond to more high-risk type asset classes.” Kessler added that he expects to see further hype cycles in 2021, particularly in the DeFi space.

Philippe Bekhazi argued that DeFi will “evolve from a very immature and cowboy-like market to a more responsible one,” at least for the already established DeFi protocols, noting that a “flurry of new protocols” is expected. The more regulatory pressure there is on centralized finance via KYC (know your customer) / AML (anti-money laundering) and other measures, the more DeFi will benefit, concluded Bekhazi.
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