Equally, DEX quantity has continued its sturdy development since July 2020. Cumulative DEX quantity now surpasses most centralized exchanges, topping $10B per day in January 2021.
Quantity has been pushed by development in DeFi, but additionally tailwinds from broader crypto bull markets and sustained traction in classes the place DEXs take pleasure in aggressive benefits. These embrace entry to the long-tail of novel DeFi tokens; and environment friendly swaps between extremely correlated belongings (e.g. stablecoins).
Nonetheless, DEXs at the moment settle trades on the primary Ethereum blockchain, and are thus topic to oppressive fuel costs in intervals of excessive demand. This drives continued curiosity in scaling options, with a notable milestone as Synthetix has launched on Optimism (a rollup-based scaling answer).
Whereas taking a look at top-line metrics is encouraging, the very fact stays that DeFi is shifting too rapidly for any single particular person to maintain observe. Listed below are some excessive stage themes we discover fascinating:
DeFi tasks are embracing composability: New DeFi tasks both introduce new primitives, or bundle present primitives to create web new merchandise. Consider these primitives as lego bricks, 6 months in the past we had been designing and constructing single bricks. In the present day we’re combining these bricks into automobiles, planes, and castles.
Composability is extending into DeFi variations of partnerships: DeFi tasks are wrestling with key questions round moats, defensibility, and top-line development. Most tasks appear to embrace open group collaboration, believing communities create moats (you can not fork a group). This actual imaginative and prescient initially led to the governance token and yield farming phenomenon, and at the moment is evolving into inventive partnerships and collaborations, most notable in Sushiswap’s 2021 roadmap.
Scalability is turning into a bottleneck, however options are coming: As the bottom Ethereum chain struggles beneath scale, a number of protocols are overtly exploring integrations with Layer-2 networks or different blockchains. Search for vital progress in 2021, particularly in Ethereum rollups.
Regulatory uncertainty impacts improvement: In tandem, the SEC lawsuit in opposition to Ripple and CFTC lawsuit in opposition to BitMEX show that regulatory our bodies are paying shut consideration to crypto, and never afraid to cost the most important gamers within the house. It’s cheap to count on elevated consideration on DeFi based mostly tasks, and this uncertainty continues to affect function improvement in regulated jurisdictions.
Talking of regulation….
Two sides of the regulatory spectrum
Over the previous quarter, each FinCEN and the OCC have come out with crypto regulatory steering. Despite the fact that each are beneath the purview of the US Treasury, the steering appears to be on the other ends of the spectrum towards crypto friendliness.
FinCEN is chargeable for adherence to KYC/AML legal guidelines, that are particularly vital for crypto exchanges (“VASPs — digital asset service suppliers”) like Coinbase. Crypto exchanges are required to confirm their buyer’s identities (KYC) and use blockchain forensic instruments to check crypto transactions with a purpose to guarantee deposits don’t come from doubtlessly illicit sources.
FinCEN just lately proposed an modification to the Financial institution Secrecy Act’s FBAR laws, particular to cryptoassets and VASPs. In abstract, beneath the brand new modification, US residents must report crypto holdings and transactions larger than $10K no matter the place the cryptoassets are held. To summarize, the modification would primarily require US people to report crypto holdings in extra of $10K which are held in international accounts, and require crypto exchanges or wallets to retailer buyer info associated to any transaction above $3K, and report this info to FINCEN for any transaction above $10K.
Moreover, the general public discover had a restricted 15 day remark interval over the U.S. vacation break, which made it doubtlessly troublesome for crypto service suppliers to reply.
Many crypto service suppliers (Coinbase, Constancy, Sq., CoinCenter, ErisX, amongst others) have come out with sturdy responses arguing in opposition to the proposed rule, highlighting (amongst different issues) the rushed nature of the proposal and insufficient time to deal with questions.
Since then, the Treasury has prolonged the remark interval, and the long run stays unclear given the brand new administration.