Decentralized finance (DeFi) is the notorious concept and it is growing parallelly with revolutionary blockchain technology and cryptocurrency. Now DeFi is heading towards new achievements in 2022.
The decentralized network allows users to avoid any third party such as banks, financial institutions while making transactions. DeFi facilitates users with the same services as Banks. You can get services like lending, borrowing, buying, or selling different digital assets on DeFi.
In 2021, DeFi achieved new heights as many DeFi projects have successfully gotten attention from the globe. The DeFi graph has shown a surprising hike in a year as its market cap has soared from 20 billion to nearly $100 billion.
Advocates of DeFi believe that in the upcoming time, DeFi will expand its area and enhance its efficiency through different components. Before taking a dive into the topic let’s understand what is the need of DeFi?
Need of Decentralized Finance
You might be thinking if we have already trustworthy finance in place then why are we looking for other options. So, the answer is simple: “modern problems require modern solutions”.
We are almost at the center of the digitalization of the world. In the modern world, conventional financial structures and processes are proven less efficient.
Decentralized finance (DeFi) overcomes all these long-lengthy and time-consuming processes. Also, it avoids third parties interfering in your transaction process while updating all the details on a blockchain. This means DeFi provides more transparency, security and executes faster transactions.
Blockchains to follow in 2022 for upcoming DeFi Projects
Decentralized finance is the core concept of Blockchain technology. After the introduction of the first blockchain, many changes and developments have taken place. The current blockchain technology advancement is the result of many development processes. Now, with the expansion of cryptoverse, these blockchains developers are upgrading systems to enhance their efficiency and improve performance.
In 2022, Top blockchains are planning to facilitate decentralization with new solutions to handle congestions in upcoming years.
Ethereum developers have already started blockchain updating under the label of Ethereum 2.0. According to some crypto intellectuals, Ethereum 2.0 is the most fascinating project as it will provide scaling solutions to current major problems such as higher transaction costs, slower transactions, and many others.
Ethereum 2.0 will work on a Proof-of-stake mechanism rather than Proof-of-work, which is more energy-efficient. Also, the Sharding concept will help users to execute faster transactions.
Ethereum 2.0 has already tested its beta version (Phase 0) like beacon chain and kintsugi before the final merge with the testnet. The merge with testnet is expected in the first half of 2022 and a complete roll-out could be done by the end of 2022. (if there will be no more delay).
Polygon is the layer-2 scaling solution for Ethereum and Matic Network, which provides blockchain scalability solutions. It also allows creating blockchain networks compatible with Ethereum.
In 2022, the Polygon network is expected to cover new projects such as sidechains, layer-2 scaling solutions, and sovereign blockchains. With the expansion of DeFi, requirements of compatible blockchains also surge.
Recently, many DeFi projects are shifting towards the Polygon network due to its interfacing capability. Due to the rush of numerous projects, Polygon can boost decentralized finance in 2022.
Cardano is the currency-only blockchain which works on a proof-of-stake mechanism, which works under 2-layers, Cardano Settlement Layer and Cardano computational Layer. After the launch of the Cardano in 2017, Cardano has introduced 5-stage for blockchain upgrades. Recently, Cardano has completed its Shelly stage and now its development will focus on the second of these 5 stages in upcoming years. The forthcoming stages are Goguen, Basho, and Voltaire.
- Goguen: introduce a smart contract platforms, which will allow the function of building decentralized applications
- Basho: This stage will provide scaling solutions to enhance blockhain performance
- Voltaire: Introduces treasury and voting systems to create a self-sustaining network
Along with these projects, Cardano is also planning to facilitate its platform with an open-source project structure and end-to-end microfinance transactions in the second half of 2022.
Are you fond of Virtual Reality? If yes then this incredible blockchain concept is for you.
Decentraland is the blockchain, which provides land parcels in the form of non-fungible tokens for Metaverse building. Metaverse can be defined as a virtual world on a decentralized network and built on blockchain technology.
In 2021, the Metaverse concept was in hype as many collaborations took place in the span of one year. The first metaverse project, “The Sandbox game” has made a partnership with hip-hop star, Snoop Dog. Also, he has organized virtual concerts on the Sandbox, which has attracted a large fanbase towards metaverse.
In 2022, Decentraland is expected to soar with the metaverse concepts and its high demands.
Solana is the fastest growing blockchain in the world. This latest blockchain came up with cutting-edge technology, such as smart contracts, which plays a crucial role in the decentralized financial system as well as non-fungible tokens.
What gives Solana an edge over the Ethereum blockchain is transaction processing speed and cost. The average transaction cost of Solana is $0.00025 and the transaction speed is 50,000 tps. In 2021, Solana token has soared nearly 17,500%, which shows it’s potential future.
Currently, the Ethereum blockchain is facing some limitations such as congestion in the transaction process and higher transaction cost. These limitations can encourage users to shift over Solana, which is providing almost similar functions such as non-fungible tokens.
Why will DeFi Grow?
Before predicting the future of decentralized finance let’s take a look into past ups and downs in DeFi’s journey. After the introduction of blockchain technology, numerous DeFi-based projects rolled out and some of them got attention from worldwide. But the journey to become broader was not that easy for initial DeFi-projects.
But after the surge in the market valuation of prominent cryptocurrencies such as Bitcoin and Ether, the world is now looking at DeFi projects with fresh eyes. In the upcoming days, DeFi is expected to surge exponentially due to new developments and innovations.
1. Web 3.0
Web 3.0 is the third generation of the internet, which will be inspired from decentralized network and blockchain technology. It will also consist of fascinating concepts such as non-fungible tokens, cryptocurrency. Web 3.0 will substitute “big companies” (Such as Google, Facebook) as a data controller.
After a few social media platforms were accused of data breaching, Many tech-savvy users started to find alternatives. Some of them are watching Web 3.0 development as a potential competitor.
As web 3.0 will use the decentralized concept, it will definitely boost decentralized activities and projects. The best upcoming updates for Web 3.0 includes ZCash, Helium, and Polkadot, which will launch in 2022.
If you have never heard about ‘Metaverse’ then you can consider it as a virtual world. Yes, developers are trying to change the Social Media concept and are shifting towards virtual reality experience.
Metaverse can give you wings to fly in the sky or you can attend the concert of your favorite singer from your home through devices and VR technology. Yes, some metaverse projects are aiming to introduce a new definition of social media, where people can meet through teleportation in the virtual world and they will be allowed customized avatars.
Developers are planning to shift centralized social media platforms to decentralized platforms, where users can store or manage their own data and take care of their data privacy.
DAO is the abbreviation for the decentralized autonomous organization.
So what the centralized organization currently does is form a committee or board of directors to take decisions of that organization and projects. This means, only one person is allowed to make decisions for the entire organization. This approach is faulty and less reliable as there is a high chance of human errors and biased decisions.
DAOs is a whole new concept to replace this faulty system and prevent human errors as it performs on the decentralized network. Rather than giving decision-making power to individuals, DAOs shift powers to every member of the group. Every decision of DAOs are decided through voting. The rules are decided and written on smart contracts.
Some famous DAOs are MakersDAO and ConstitutionDAO.
Obstacles of DeFi in 2022
In 2021, many DeFi projects suffered cyberattacks, and hackers have stolen more than $10 billion worth of crypto in just 2 years. These hacking activities are a big threat to crypto investors as many investors have already lost their capital in DeFi.
Lack of awareness is also one of the reasons behind cyber attacks. There are certain standards for protocols and crypto firms to provide their services. But there are some projects, which roll out without maintaining these standards. These projects are soft targets for hackers to exploit bugs.
But the good news is that some collaboration has formed in 2021 to counter cyber attacks. Many crypto wallets and exchanges are helping DeFi projects to the fridge hackers’ accounts. Also, upcoming projects have announced bounty programs while testing on testnet, to identify bugs and loopholes in their projects.
‘Change is always painful’, this quote is true in decentralized finance. It’s been a decade since the first blockchain introduction, but still some countries are suspicious about DeFi and its future. The financial institutions and authorities are frightened about the DeFi impact on the economy.
Many crypto critics are considering DeFi Worthless as there will be no authority to handle such incidents or transaction errors. On the other hand, last year countries like El Salvador accepted Bitcoin as a legal currency along with USD. This shows different mindsets regarding DeFi across the world.
In 2021, leading cryptocurrency Bitcoin and Ether, both have touched new heights. Moreover, Numerous collaborations and partnerships have been made to achieve a decentralized finance’s goal. Next year, Whether DeFi will make history or not, some revolutionary changes will definitely be there. Blockchains and DeFi protocols are already enhancing their ability to handle a large user base in the future. So, 2022 would be a proven turning point in DeFi history.