Before DeFi, finance used to be a highly centralised industry. Banks and financial institutions had a tight hold over everything with money and financial capital, which ultimately didn’t benefit investors. Since DeFi, the world of finance has envisaged a degree of liberalisation that could not be conceived before. For the first time in the history of finance, the concept of decentralisation took precedence over the traditional form of financial management.
Despite posing an existential concern for the entire centralised economy, DeFi was quick to take root as a new giant gateway into the space of opportunities in the form of dApps. In contrast to DeFi, the strength of underlying blockchain technology allows anyone to use traditional financial instruments in a permissionless manner while being assured of the security of the operation performed. With the rapid pace of development and innovation, DeFi jumps ahead of traditional finance.
We sat down with the Director of Operations at Eightcap, an award-winning crypto derivatives provider, Marcus Fetherston, to discuss the future of DeFi and why there has been a massive interest in the world of decentralised finance for derivative traders.
To begin with, could you tell us a bit more about the transformative role DeFi has already played in finance?
We can evidently see the amount of creativity and innovation from the decentralised finance system. For example, Non-Fungible tokens built on blockchain technology have caused a stir within the cryptocurrency space. Some have even been worth millions of dollars. I think DeFi’s ability to change the scope of traditional finance is just beginning. Already, DeFi’s ecosystem has billions of dollars worth of digital assets found in its financial products. The use of smart contracts to provide alternative services to financial products will change our day-to-day life indefinitely from loans, savings accounts, to even trading financial products.
We already know that DeFi has reinvented the traditional realms of the financial industry, but how can DeFi evolve? I think we will see the next major step in DeFi coming from further optimization of the current protocols and the greater development of bridges to mainstream finance. Whilst the DeFi community is very passionate about the space; the real value will lie in connecting the various value-delivering DeFi protocols to the mainstream and adopting certain parts of them in traditional finance. This will allow for adoption to go from the hundreds of thousands to millions of people and truly create a scale for these protocols.
In your opinion, how much more time will DeFi require to take root through mainstream adoption?
We could argue that mainstream adoption of DeFi has already been taking place over the past year, especially as decentralised financial services have become more accessible. However, we still have a while to go until we get to the point of mass adoption. This has a lot to do with regulation and technology that can connect the DeFi space back into traditional finance or make it directly accessible to the public without jumping through many steps to reach the end value. We are starting to see this in newer fintech companies plugging into DeFi and offering a one-step process to connect a consumer through to the benefits of DeFi, such as higher staking yields and greater liquidity. Furthermore, as more exchanges and providers offer DeFi products to their clients, this obviously will encourage mainstream adoption.
From your point of view, are traditional assets a thing of the past? What gives you a basis for such a conclusion?
I wouldn’t say that traditional assets are a thing of the past. That’s a big proclamation to make, and forex is still a highly liquid and the most-traded market. However, I do think there has been a phenomenal increase in investing in digital assets. Flashback five years ago, and Bitcoin brought a lot of scepticism to the world of investment. There was reluctance to accept crypto and blockchain as a potential alternative to traditional assets. Digital assets have evolved over the years. It has become more acceptable to see crypto in a trader’s portfolio, along with the more traditional assets such as gold and forex. El Salvador’s move in 2021 to make Bitcoin a legal tender alongside the U.S. dollar was the first step in the direction to accept cryptocurrency as more than a digital asset.
We can also see how macroeconomic events significantly impact cryptocurrency price movements. With further developments in blockchain technology, the relation between crypto and macroeconomic events, and widespread digital currency adoption, I think that there has been a noticeable increase in the inclusion of digital assets in investor portfolios. However, digital assets won’t replace traditional investments; there is still a while to overcome hurdles before that is a remote possibility. We offer our clients a range of instruments to trade from to diversify their portfolios. They can long or short cryptocurrency to take advantage of falling and rising prices and speculate on more traditional assets such as major currency pairs, oil and gold.
How does Eightcap cater to the needs of derivative traders looking to start speculating on decentralised finance?
DeFi revolves around stablecoins as investors can generate higher yields on their crypto assets and avoid large amounts of market volatility. DeFi can be a more attractive option than more traditional forms of investments like bonds, as you can digitise your funds to earn higher yields in the DeFi space. If derivative traders are interested in speculating in projects centred around DeFi, then a derivative such as DFI.Money would be where to start. DFI.Money essentially acts as the aggregator that automatically places an investor’s assets to work for high-yield profits. You can buy and sell DFI.Money with a regulated broker such as Eightcap on a zero commission account paired with low spreads.
We offer over 250 cryptocurrency derivatives for traders to choose from, including altcoins, crypto-crosses and crypto indices. Also, several DeFi protocols are currently operating on the Ethereum ecosystem, and the number of dApps on the Ether blockchain is also set to increase rapidly. We offer ETH to our derivative traders who want to make the most of market movements and the other blockchains that smart contracts are developed on, including Solana, Cardano and Polkadot. As well as this, derivative traders interested in the DeFi space can also speculate on the price of popular stablecoins such as BUSD. (Binance Coin) and a number of dApps such as Uniswap.
How should we regulate DeFi?
Thanks to social media, there are no two ways about this cryptocurrency, and blockchain technology is now part of our vernacular. There is already an estimated $200+ billion in value of DeFi projects as of Jan 2022. This parallel financial system is rapidly growing and gaining much more interest. Regulation or a clear set of guidelines will be much more efficient and really exacerbate the benefits of DeFi for the investor. The landscape in 2022 regarding regulation is not set in stone. Still, we know that the U.S. consciously recognises the benefits of DeFi and is also wary of the challenges it could pose to investors and the financial markets. The dApp’s running on blockchain ecosystems could be argued to be similar to traditional centralised financial applications – for example, obtaining a loan through a dApp. As similarities are too hard to ignore, there is a need for a regulatory framework that protects the rights of both parties involved in signing a loan.
That being said, I think keeping DeFi as a technology service that financial institutions can plug directly into holds tremendous value. As such, the regulatory burden can lie on traditional institutions whilst allowing DeFi protocols to innovate and provide.
Finally, what tips would you give to anyone willing to engage in derivative trading in 2022?
Before considering trading cryptocurrency derivatives, we recommend that you research the market before entering a position. Education is critical when it comes to crypto derivatives trading. We work to build a home for derivative traders, and part of that is to offer free educational resources and tools that enhance the trading experience. In particular, when it comes to crypto derivatives, we offer free eBooks on various altcoins, a trading automation tool, regular market updates, and a selection of guides and articles that cover everything from the basics of crypto to more advanced topics about the cryptocurrency market.