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DeFi Trends - December 8th

Regulation

There is no longer a question regarding if DeFi regulation is needed. This is a matter of when DeFi regulation will be imposed. As the FTX saga continues, the push to regulate both DeFi and cryptocurrencies are stronger than ever. In fact, the momentum for increased government regulation has never been stronger. However, regulating DeFi is very difficult because at the core we are dealing with non-traditional entity structures with the people in charge remaining 'anonymous.' It is too soon to say exactly what a DeFi regulatory framework will look like but based on ongoing discussions and comments there is a lot of information to be gained on how the framework will possibly be rolled out.


NFTs

Non-Fungible Tokens are defined as cryptographic assets on a blockchain with unique identification codes and metadata that make them unique from one another. NFT's can represent real-world items (i.e. real estate, artwork, jewelry) as well as representing property rights and more. However, unlike many cryptocurrencies, NFT's cannot be traded or exchanged for equal value. This is the prime component differentiating NFT's from most cryptocurrencies (which are oftentimes equal to one another and has the ability to serve as a medium of exchange.


Metaverse

“[The Metaverse is] a massively scaled and interoperable network of real-time rendered 3D virtual worlds that can be experienced synchronously and persistently by an effectively unlimited number of users with an individual sense of presence, and with continuity of data, such as identity, history, entitlements, objects, communications, and payments.” (Matthew Ball, The Metaverse: And How It Will Revolutionize Everything). When thinking about the Metaverse, it is important that we consider that this is not an unprecedented revolution. The Metaverse is instead an evolution of the web.


Cross-Chain Functionality and Scalability

Most blockchains are isolated, meaning that they are unable to communicate with one another. Cross-chain functionality enables blockchains to communicate with one another due to their uniform construction. Cross-chains overcome the constraints of a single chain. Cross chain functionality clears the way for better scalability as single blockchains are restrained due to limited interoperability.


DAOs and Governance Tokens

Decentralized Autonomous Organizations, also known as 'DAOs' replicate the activities of traditional business entities without many of the inefficiencies that centralized entities are often faced with. The most common ways DAOs raise funds is by issuing a governance token. Governance tokens can be purchased by and or distributed to members who actively contribute to the DAO. Typically, the first step in raising funds and filling the DAO treasury is to issue tokens. By issuing governance tokens voting power and ownership is able to be distributed across members


Decentralized Exchanges and Automated Market Makers

A decentralized exchange (DEX) is an exchange facilitating peer-to-peer transactions through digital wallets without the use of a third-party. An automated market maker (AMM) is the underlying protocol that powers all decentralized exchanges (DEXs). Simply put, AMMs are autonomous trading mechanisms that eliminate the need for centralized exchanges and related market-making techniques. AMMs facilitate the process required to provide liquidity for trading pairs on centralized exchanges.


DeFi derivatives

DeFi derivatives often rely on the use of smart contract technology and other technology-enabled solutions. DeFi derivatives allow investors to limit their exposure to risk and benefit from underlying assets’ price movement. Like the derivatives found in traditional finance, the motivations behind DeFi derivatives and other decentralized derivatives are hedging price, risk, and gaining exposure to a particular asset or market without being directly involved. DeFi derivatives’ values are often tied to cryptocurrency markets, although, in some cases, they track the value of fiat, commodities, and other traditional assets.


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