Why DeFi will continue to be a significant driving force in the blockchain industry. Read on –
As we approach the end of 2022, it is time to pause and celebrate the phenomenal growth and adoption the DeFi space underwent this year.
Decentralized Finance (DeFi) protocols have been gaining traction among retail and institutional investors this year. There has been an increase in DeFi-based products and services offering users a higher yield and easier access to financial freedom.
With the recent crumbling of centralized exchanges, users have become more aware of the benefits of decentralization, and the demand for decentralized exchanges is growing. DEXs are becoming popular because they offer a secure and transparent trading experience.
We explore some of the top trends that are likely to shape the DeFi landscape in 2023.
1. Heightened awareness around self-custody of crypto assets
Crypto investors and traders have been in turmoil in the past few weeks after a trusted centralized exchange filed for bankruptcy and became insolvent.
Following the event, users questioned the security of centralized exchanges to safeguard their crypto assets and are pivoting towards self-custody and decentralized exchanges. The reason is simple – while we have seen a few CeFi companies fail, DeFi exchanges continue operating as designed.
Unlike centralized exchanges, DEXs like GammaX do not hold custody of users’ funds. The user completely controls their assets as they have keys to their wallets and can withdraw and deposit funds anytime. Moreover, DEXs are secure as audited open-source smart contracts back them. In light of this greater awareness about asset protection and self-custody, DeFi may be more widely adopted in 2023.
2. Trading in crypto derivatives to gain momentum
The crypto derivatives market has grown considerably on two fronts – market capitalization and participation from institutional investors, according to Crypto Derivatives: State of the Market by The Block Research Report. A recent example of the surge was when investors tried to hedge positions after the FTX collapse.
Crypto derivatives give retail investors and traditional financial firms a chance to gain exposure to the crypto markets with a lower entry barrier. The derivatives market made up 69% of total crypto volumes in July 2022, according to CryptoCompare. With decentralized derivatives exchanges like GammaX joining the bandwagon and offering better user experience and security, crypto derivative trading will likely outpace spot trading.
3. DEXs to fuel DeFi growth
The biggest challenge of a decentralized exchange is balancing decentralization with the efficiencies of a centralized exchange. DEXs, by design, operate in a decentralized manner without a central authority. They are peer-to-peer (P2P) exchanges that allow users to trade cryptocurrencies without needing a third party.
With the recent bankruptcy of centralized entities, DEXs witnessed a surge in usage.
Despite increasing trading volumes on DEXs, the concerns remain the same – their interfaces are difficult to navigate. As more users consider switching to DEXs and the volume grows, there is a dire need for them to become more efficient.
GammaX recognizes this gap and has created an order book-based DEX that combines the strengths of both worlds – CEXs and DEXs. Our CLOB-based DEX is a hybrid model that combines the order book and matching engine off-chain, the settlement layer, and the (non-)custody of assets on-chain. It allows for faster order execution and lower latencies while still providing the benefits of non-custody and the transparency of native DEXs.
4. DeFi lending and borrowing platforms to soar
Decentralized lending and borrowing platforms, which use smart contracts to allow users to lend and borrow cryptocurrencies and other assets, have emerged as one of the most promising areas of DeFi.
Many financial apps are built on DeFi, including payments, decentralized exchanges, stablecoins, yield farming, insurance, and more.
In the coming year, we can expect to see more innovations in this space due to the potential disruption of traditional lending and borrowing models.
5. Multi-chain infrastructure to solve scalability issues
As the DeFi ecosystem grows at a rapid rate, it faces the challenge of increasing transaction costs. To address this hurdle, projects in the crypto space will adopt cross-chain or multi-chain functionality.
However, cross-chain bridges are the most vulnerable components of the blockchain infrastructure. GammaX will likely in the future opt for multi-chain functionality to eliminate security risks while simultaneously providing users with the functionality of various chains.
Multi-chain functionality will reduce reliance on a single network to scale and provide traders with uninterrupted user experience with low order latency.
In 2023, DeFi will continue to be a significant driving force in the blockchain industry. We will see greater adoption of DeFi protocols and products as more institutional investors enter the space, and the number of DeFi-based services and products will increase.
DeFi will be more accessible to the general public, allowing more users to benefit from the advantages of decentralization and financial inclusion.
At GammaX, we are committed to our trader-centric vision and are working to build a decentralized exchange with the widest and most liquid selection of perpetual trading pairs.
GammaX is an order book-based decentralized derivatives exchange with an on-chain transaction settlement layer and an off-chain order book and matching engine to provide the best user experience. And to ensure Ethereum compatibility at a low cost, we’re partnering with StarkWare’s Layer 2 scaling solution – StarkEX.