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Yield farming is a fad, but DeFi promises to change the way we interact with money

The progress DeFi has made thus far is promising, but there’s still a need for better user products, tools and services to reach mainstream adoption….

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As the COVID-19 outbreak wreaks havoc on the United States’ economy and abroad, investors grapple with a second economic downturn in just over a decade. While the 2008 financial crisis and the coronavirus pandemic are very different, both events have produced market volatility and allowed for new technologies to emerge.

The economic disruption wrought by the pandemic also highlights the importance of serving people who are currently outside the financial system, both in developing and developed economies. Today, there are 1.7 billion unbanked individuals worldwide, according to the World Bank.

Related: How has the COVID-19 pandemic affected the crypto space? Experts answer

Since the financial downturn, people have begun questioning established companies and traditional systems such as banks. With more than half the world’s population aged under 30 and 55% of the world’s 7.7 billion citizens now online, seeking alternative solutions to the financial structures in place has become much more than a niche. Twelve years after the 2008 financial crisis, people still seem wary of banks. According to a household survey from the Federal Deposit Insurance Corporation, outside of high fees and minimum balances, the unbanked have pointed to a lack of trust and privacy when dealing with banks as reasons for their not owning a checking or savings account. When combined, the lack of trust (16.1%) and lack of privacy (7.1%) account for almost a quarter (23.2%) of the main reasons why unbanked people do not have an account.

The lack of trust for banks created demand for alternative financial services, leading to an increasing quantity of such alternatives where people can put their money. One popular option was technology companies. This idea really took off after the introduction of the iPhone in 2007 and its App Store the following year. Not only did Apple open up opportunities for products and services but it also created a new way to quickly distribute software while keeping the world connected via the internet.

Multiple groundbreaking startups were born from economic downturns. Instagram, WhatsApp, Uber, Airbnb, Twilio, Dropbox and Slack are just a handful of the successful startups founded during the last recession. Not only were multibillion-dollar brands built in the years following, but fintech startups like Kabbage, LearnVest and Betterment started popping up around Silicon Valley and making major inroads toward the digitization of banking. These fintech apps have not only taken out some of the intermediaries but also drastically changed the way people interact with money on a daily basis.

Related: Crypto banks are going to swallow fiat banks in 3 years — or even less

Financial exclusion

Uncertain times pave the way toward a better world as people look to more reliable alternatives to the financial institutions that have failed them. Just as the 2008 recession forced successful startups out of the rubble, 2020’s COVID-19 pandemic is doing the same. Today, we’re seeing the unemployment rate rise due to COVID-19. This fall, the United States Bureau of Labor Statistics reported that long-term unemployment, or those that have been out of work for 27 weeks or more, jumped to over 2 million — the highest thus far in the coronavirus pandemic-induced recession. Though some people have returned to work, data shows a marked increase in unemployment rates over the past seven months.

With anxiety at an all-time high, both consumers and businesses are looking to banks and credit unions for financial relief, access to government aid, and guidance on how to cope with the ongoing economic storm. However, institutions are failing, and unfortunately, the systems put in place to protect us such as healthcare, testing, protective equipment and supply chains have crumbled from poor leadership and delayed reactions. Just like in 2008, consumers are turning to technology for solutions.

An opportunity for DeFi

This represents a massive opportunity for fintech today, specifically decentralized finance, as it has the ability to provide most of the population access to financial services. As the hot, new cryptocurrency trend of 2020, DeFi cuts down intermediaries such as banks, thereby adding to the speed of transactions. Total value locked on DeFi platforms has risen by approximately $12 billion in the span of one year, according to industry site Defi Pulse. During a time when central banks are slashing interest rates with a benchmark rate sitting close to zero, investors are on the hunt for new returns and are now ready to explore DeFi.

Over the years, raising funding has been challenging for fintech firms, particularly early-stage ventures, as investors typically focus on established startups with clear business models. However, the economic slowdown has significantly changed the narrative around Bitcoin (BTC), DeFi, stablecoins, privacy and more. The value locked into DeFi projects continues to surge, but a milestone less discussed is the industry having crossed $500 million raised in venture capital funding.

According to data collated by CB Insights on the fintech space in the third quarter of 2020, 60% of all capital raised by financial technology startups came from just 25 rounds worth $100 million or more. Adding to the trend of growing venture capital funds, the report noted that fintech investment from $100 million rounds grew 24% compared to Q2, while investment in the space from smaller deals fell 16% over the same timeframe. Overall, fintech deal volume dipped 24% compared to Q3 2019, totaling 451 global deals. However, dollars invested into fintech startups edged up once again to $36.5 billion in Q3 2020, the largest result thus far in 2020 and the second-best, single-quarter result since year-end. Notably, the number of smaller venture rounds — those marked “seed” or “angel” — grew by 20% compared to Q2 2020.

Related: Chasing the hottest trends in crypto, the EU works to rein in stablecoins and DeFi

With all eyes on DeFi, it’s time to understand that it’s less about the insane returns offered to yield farmers and more about the democratization of finance. While still in the sector’s early years, DeFi projects are already unpacking inefficiencies in the current system by increasing financial inclusion, increasing liquidity and reducing costs. Since the start of Q3 2020, “deposits by cryptocurrency enthusiasts into DeFi projects have swelled to more than $10 billion from $2 billion.”

Beyond finance, there is a growing interest in DeFi and its potential to improve existing current systems and infrastructures. It’s no longer acceptable for industry players to promote an “incredible tool for inclusion” while no work is being done on the usability front. Despite the sector’s incredible promises, the level of complexity for users is still a major barrier to mass adoption.

The views, thoughts and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Tim Frost is the founder of Yield, a fintech app making DeFi accessible to everyone. Specializing in early-stage blockchain startups, Frost helped accelerate blockchain companies at the likes of QTUM, NEO, Paxful, Polymath, Selfkey and Everex. He was also a founding member of the Wirex, a digital banking platform, and helped grow EQIBank. His expertise in banking, blockchain and technology has played an influential role in helping develop the tools and products for Yield.

The lack of trust for banks created demand for alternative financial services, leading to an increasing quantity of such alternatives where people can put their money. One popular option was technology companies. This idea really took off after the introduction of the iPhone in 2007 and its App Store the following year. Not only did Apple open up opportunities for products and services but it also created a new way to quickly distribute software while keeping the world connected via the internet.

Source: https://cointelegraph.com/news/yield-farming-is-a-fad-but-defi-promises-to-change-the-way-we-interact-with-money

yield-farming-is-a-fad,-but-defi-promises-to-change-the-way-we-interact-with-money

Cointelegraph

The future of DeFi is spread across multiple blockchains

Creating interoperability, not competition: Multichain solutions will positively impact the blockchain space in terms of accessibility, innovation and economic viability.

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Long stuck in the shadows of Bitcoin (BTC), Ethereum (ETH) finally took hold of the market in 2020 during the decentralized finance summer. Designed to recreate traditional financial systems with fewer middlemen, DeFi is now being used across lending, borrowing, and the buying and selling of tokens. The majority of these decentralized applications (DApps) are run on Ethereum, which saw activity on the network increase during 2020. This activity also trended upwards due to yield farming, also known as liquidity mining, which enables holders to generate rewards with their crypto capital.

But as activity on Ethereum increased, so too did the network’s transaction fees. In May, it was reported that Ethereum gas fees were skyrocketing. It’s intuitive that engaging in DeFi is only worthwhile when handling capital that exceeds any network fees. Consequently, it soon became clear to users that the blockchain was verging on unusable.

Related: Where does the future of DeFi belong: Ethereum or Bitcoin? Experts answer

Without a doubt, Ethereum remains the most active and populated blockchain, but other potential players are popping up, providing a viable alternative to Ethereum. For example, layer one protocols such as Binance Smart Chain (BSC) and Solana (SOL) are attracting billions in assets under management, whereas layer two solutions such as Polygon (MATIC) are capturing Ethereum’s disgruntled users’ attention due to their compatibility with Ethereum-based protocols. This is in addition to delivering low fees and quick transaction speeds. However, despite Ethereum gas fees reaching a high over the past year and the growth of faster networks, none of these chains have killed Ethereum yet.

It’s because of this, as we enter the second half of 2021, that the narrative of “Ethereum vs. the rest” is starting to change — developers are realizing the value of a cross-chain future rather than having to pick one blockchain to build on. It’s no longer a case of creating a chain with a competitive edge, but of ensuring all chains can work interchangeably to improve the industry.

Related: A multichain future will accelerate innovators and entrepreneurs

Benefits and drawbacks of a multichain future

Due to its prominence and longstanding presence in the market, Ethereum has the first-mover advantage and remains the most significant blockchain within the DeFi ecosystem as of Q1 2021. But with other chains gaining momentum, it is these alternatives to Ethereum that are providing the benefits of faster transaction speeds and significantly lower fees.

The introduction of other chains isn’t necessarily a bad thing, even for Ethereum fans. After all, a multichain ecosystem brings additional space for new protocols to enter, each with a strong user base. Each new chain also creates a new community, vacancies for services, and an individual identity and culture.

Related: Too little, too late? Ethereum losing DeFi ground to rival blockchains

One possible drawback, depending on how you look at it, is that some blockchains require unique programming languages, such as JavaScript, Rholang, Simplicity, Rust or Solidity, which may present a barrier to entry for developers. At the same time, however, different coding languages can present a new way for developers to solve a problem. And as the blockchain space moves further towards multichain, it may inspire developers to create and innovate as they witness the diversity in viable blockchain projects. It’s for this reason that projects which don’t innovate could be seen as lagging and abandoned by their community.

Not only that, but separated blockchains create innovation silos, presenting challenges to progress and adoption. Joining the multichain future together can be seen as seamlessly connecting these specialized groups. This could be seen as a difficult objective to achieve in the traditional tech world, but cryptocurrency and blockchain are challenging these existing infrastructure monopolies, and this industry has the ability to pioneer an ecosystem that works cohesively rather than competitively.

Related: Life beyond Ethereum: What layer-one blockchains are bringing to DeFi

More blockchains, more value

It’s inevitable that projects will eventually connect multiple blockchains, making the transfer of information from one chain to another seamless. In fact, the cryptocurrency market and multichain adoption is less of a zero-sum game than is often cited. And, as the multichain future becomes more apparent, it will only become clearer that the additional functionality, usability and scalability it brings is contributing to the onboarding of new users.

Related: The great tech exodus: The Ethereum blockchain is the new San Francisco

Rather than viewing the existence of a multichain future with doubt, it should be looked on positively. There are plenty of different smart contract platforms in the crypto ecosystem, all of which impact the blockchain space in terms of accessibility, economic viability and innovation. Blockchains may be separated right now, but everything will come together in the end, creating an interoperable and fast network of protocols that fulfils our daily needs. The beauty of this is that we won’t have to worry about how we’re transacting or what we’re transacting on, as it won’t matter.

We’re still far from achieving the end goal of interoperability, but once it’s achieved mass adoption, the crypto industry will be unstoppable. And, as the sector continues to grow, projects are finding that they have to adapt to a multichain future soon or risk getting left behind.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.

The views, thoughts and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Michael O’Rourke is the co-founder and CEO of Pocket Network. Michael is a self-taught iOS and Solidity developer. He was also on the ground level of Tampa Bay’s Bitcoin/crypto meetup and consultancy, Blockspaces, with a focus on teaching developers Solidity. He graduated from the University of South Florida.

Without a doubt, Ethereum remains the most active and populated blockchain, but other potential players are popping up, providing a viable alternative to Ethereum. For example, layer one protocols such as Binance Smart Chain (BSC) and Solana (SOL) are attracting billions in assets under management, whereas layer two solutions such as Polygon (MATIC) are capturing Ethereum’s disgruntled users’ attention due to their compatibility with Ethereum-based protocols. This is in addition to delivering low fees and quick transaction speeds. However, despite Ethereum gas fees reaching a high over the past year and the growth of faster networks, none of these chains have killed Ethereum yet.

Source: https://cointelegraph.com/news/the-future-of-defi-is-spread-across-multiple-blockchains

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Chainalysis raises $100M in Series E funding led by Coatue

Chainalysis secures its second $100 million investment round in three months.

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Chainalysis has secured hundreds of millions of dollars in the second quarter as venture firms allocate more resources to the emerging blockchain sector.

Chainalysis raises $100M in Series E funding led by Coatue

Blockchain analytics company Chainalysis has secured $100 million in Series E financing, bringing its total valuation to a staggering $4.2 billion and highlighting once again the tremendous growth of the cryptocurrency industry.

The round was led by global investment manager Coatue, with additional participation from 9Yards Capital, Altimeter, Blackstone, GIC, Pictet, Sequoia Heritage and SVB Capital, Chainalysis announced Thursday.

Chainalysis said the funds will go toward expanding its blockchain data capabilities, which includes investing in new data tools, software and APIs.

“We believe blockchain data is the asset that can help public and private sector organizations understand the risks and opportunities surrounding this asset class and promote its adoption safely and successfully,” the company said.

Chainalysis’ valuation has more than doubled in the last quarter thanks to several strategic investments. As Cointelegraph reported, the company closed out a $100 million Series D round in March led by Paradigm, a crypto-focused investment firm. At the time, Chainalysis’ director of communications Maddie Kennedy told Cointelegraph that the funds will be used to expand the company’s enterprise data offering.

Related: Crypto-finance company Amber Group valued at $1B following $100M raise

Mega-million-dollar funding rounds have become commonplace in the cryptocurrency industry over the last six months. Venture firms have poured billions into crypto startups this year alone, with the likes of Andreessen Horowitz going a step further by announcing a new $2.2 billion crypto venture fund.

What’s more, dealmaking seems to be happening irrespective of current market conditions, which marks an important evolution from the 2017 bull market that saw venture funding dry up once the initial coin offering mania faded.

Source: https://cointelegraph.com/news/chainalysis-raises-100m-in-series-e-funding-led-by-coatue

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Crypto miners eye cheap power in Texas, but fears aired over impact on the grid

Can Texas meet the electricity demands of migrating Chinese Bitcoin miners?

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The recent crackdown on crypto mining in China has seen concerns expressed over the potential impact a hashrate migration could have on Texas’ unreliable electricity market, as an increasing number of dislocated miners eye the Lone Star State.

Texas’ abundant sources of renewable energy and highly deregulated power grid make the state an obvious choice for migrating miners from China and elsewhere, with 20% of Texan electricity being generated by wind as of 2019.

Speaking to CNBC, Brandon Arvanaghi, a former security engineer at crypto exchange Gemini, predicted Texas will see “a dramatic shift over the next few months” as miners look to set up shop.

“We have governors like Greg Abbott in Texas who are promoting mining. It is going to become a real industry in the United States, which is going to be incredible,” he said, adding:

“Texas not only has the cheapest electricity in the U.S. but some of the cheapest in the globe.”

Castle Island Ventures’ founding partner, Nic Carter told CNBC that half of the world’s hashing power could ultimately exit China’s borders and will need new homes, stating:

“Every Western mining host I know has had their phones ringing off the hook. Chinese miners or miners that were domiciled in China are looking to Central Asia, Eastern Europe, the U.S., and Northern Europe.”

Global hash rate has fallen by one-third since early May following reports that China’s mining industry would be subjected to stricter supervision.

But is the Texan power grid up to the challenge of providing power for an influx of more crypto miners? The Electric Reliability Council of Texas (ERCOT) has just requested that Texans curb their electricity usage amid the recent heatwave that saw many residents turning up their air conditioners earlier this week.

Roughly 12,000 megawatts of generation capacity was offline as of Monday — enough to power 2.5 million homes. ERCOT described the scale of forced outages as “very concerning.”

The regulator warned that a failure to heed the request could result in a repeat of the widespread winter power failures that left 69% of Texans without electricity, and roughly half without water in February. According to Buzzfeed, February’s outages could have resulted in up to 700 deaths in the state.

Angela Walch, a Texas research associate at University College London’s Centre for Blockchain Technologies, tweeted her concerns regarding the share of Texas’ electricity being devoted to Bitcoin mining, emphasizing that her family has been “asked to reduce our air conditioning use, not run washing machines & dryers, etc.”

Obviously, Bitcoin is not the sole cause of this cluster*^% that our poor political leadership in Texas has caused.

But, I am curious to know the portion of the grid it uses. Maybe Bitcoin miners are the first to be shut down in times of grid stress.

— Angela Walch (@angela_walch) June 15, 2021

However Tierion CEO Wayne Vaughan responded by asserting that much of the electricity used to power Texan mining operations comprised stranded resources that “would never be able to reach your home to power your appliances.”

Others argued that wholesale Bitcoin mining operations could actually alleviate Texas’ power issues, with Texas’ seasonal surges in electricity demand incentivizing miners to sell power back to the state’s grid that otherwise go uncaptured.

In September 2020, the Peter Thiel-backed crypto miner Layer1 in West Texas reported it had reaped profits exceeding 700% by selling renewable electricity back to the grid amid surging summer demand.

While up-to-date data for global hashrate distribution is not available, the Cambridge University’s Bitcoin Electricity Consumption Index (BECI) estimates that China represented 65% of the world’s hashing power as of April 2020.

Earlier this month, district regulators in Western Xinjiang and Yunnan issued notices mandating the suspension of virtual currency mining enterprises. BECI estimates the two regions account for 40% of the country’s hash rate.

Castle Island Ventures’ founding partner, Nic Carter told CNBC that half of the world’s hashing power could ultimately exit China’s borders and will need new homes, stating:

Source: https://cointelegraph.com/news/crypto-miners-eye-cheap-power-in-texas-but-fears-aired-over-impact-on-the-grid

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