In the blockchain world, 2020 was the year of decentralized finance (DeFi). While the rest of the world was fearing COVID-19, blockchain had the DeFi frenzy.

In fact, DeFi has surely made the area one of the most discussed topics of 2020. According to DeFi Pulse, DeFi gained ground in the finance industry and remained a top trend in 2020. Scott Freeman, the co-founder at JST Capital, also said that 2020 had been a remarkable year for all of crypto.

Even though top cryptos like Bitcoin and Ethereum endured low volatility, DeFi assets achieved new high records. This is due to the attention it was getting from investors.

Several assets based on Ethereum, including Chainlink and Melon, shared the spotlight due to their high spikes in prices. According to the DeFi Pulse 2020 review, the dollar value of assets locked in DeFi protocols has grown from 1 billion dollars to over $13 billion in 1 year.

Moreover, the review shows 2,000% growth since January. Also, it is easy to see why DeFi isn’t going anywhere soon with such records.

Read More: DeFi Market Hits $20B TVL for the First Time

Unlike the previous years where one or two projects came out, 2020 has seen a vital boom in DeFi projects. According to DeFi Pulse, the number of projects on its leaderboard has doubled. Specifically, the team also said there were around 40 new projects in 2020 (not including any existing projects).

One major key factor that made 2020 the year of DeFi is that volatility took care of the whole crypto market around the early parts of the year. While the crypto market was suffering from large price increase and decline, DeFi projects were having a swell time due to their upward jump in price.

Besides, another major factor has been the pool of investors that have crowded over to the DeFi sector. The success enjoyed by the DeFi projects has also triggered the fear of missing out (FOMO) among investors, and they have pitched their tent in the DeFi space.

Remarkably, several DeFi governance tokens have had moments of bullish price performance in 2020. In line with this, DeFi tokens continue to grow while undergoing what seems to be a strong bull run progress.

One can’t help but wonder what DeFi’s growth will be at the end of 2021 and what innovations will come.

What to expect for the DeFi sector in 2021

Without a doubt, 2020 has been dubbed as a crazy year of predictably strong growth in DeFi. The largest push for innovations in the crypto industry is definitely in the world of DeFi. Hence, the expectancy of DeFi outperforming once again in 2021 is high. What is more fascinating about DeFi is that it allows anyone to build and launch financial products in a way that is permissionless.

Token Value

The rise in various DeFi tokens’ value in 2020 led to the craze experienced in the DeFi world. Specifically, there has been a lot of hype around DeFi projects such as Chainlink, Aave, and Synthetix. Moreover, with an alt season expected in 2021, some DeFi coins are expected to perform very well this year. Furthermore, an increase in the interest and investment funds in altcoins will ensure exponential gains in 2021.

DeFi token types and examples

Additionally, most of DeFi native tokens such as Polkadot saw steady growth last year. Moreover, the platform made headlines through stablecoins. Stablecoins are digital assets designed to combat the volatility of cryptocurrency prices. They have their value pegged to another asset price such as the US dollar, other cryptocurrencies, or precious metals.

The total outstanding supply of stablecoin has surged past $30 billion. In particular, most of that growth has been driven by the two largest stablecoins by total supply. Tether (USDT) and USD Coin (USDC) are still the major player in the market with around 79% market dominance. The US dollar still reigns supreme in the stablecoin market.

Part of the growth in stablecoin supply this year has been driven by the surge in the DeFi market. With stablecoins performing well, DeFi will certainly outshine in 2021.

Despite this, DeFi has managed to lead well-backed projects. One of them is yield farming, also referred to as liquidity mining. It is a way to generate rewards with cryptocurrency holdings. In simple terms, it means locking up cryptocurrencies and getting rewards.

In detail, yield farming is typically done using ERC-20 tokens on Ethereum. More so, the rewards are usually also a type of ERC-20 token. The launch of the COMP token, the governance token of the Compound Finance ecosystem, brought a strong interest in yield farming. Therefore, the token distribution model gave DeFi a boost in popularity.

Addedly, as the price of these tokens increased, so did the rewards. Compound successfully created a token economic model that rewarded lenders and even made it possible to profit from borrowing

Afterward, other DeFi projects have come up with innovations to attract liquidity to their ecosystems. More automated yield farmers, such as Yfarmer and Yearn.Finance, are expected to take lead in 2021. Both attempt to demystify the market and make it simpler for entry-level players to participate.

Examples of DeFi Projects

Lastly is the role of Ethereum. To date, the DeFi industry is dominated by projects on the Ethereum blockchain network, as they enjoy more compatibility with crypto exchanges, crypto wallets, stablecoins, and other tools.

The reason for the Ethereum dominance in the DeFi market is its better composability standards compared to the other blockchains. Ethereum supported the DeFi sector almost single-handedly in 2020.

In conclusion, DeFi has been one of the hottest topics in 2020. The rapid growth of the platform is expected to continue in 2021. The concept of DeFi looks promising and has the potential to solve problems found in traditional finance use cases. Also, the billions of dollars of funds that surged into the ecosystem contribute to the widespread interest in DeFi. More innovations are expected to occur.

Source: https://coinquora.com/why-2020-is-the-year-of-defi-and-what-to-expect-in-2021/