2020 was a DeFi dominated year but what will 2021 look like? We talk to leaders in the crypto space in our Virtual Meetup #9 on January 20, 2021 @ 8AM EST.
Held monthly, CoinGecko’s Virtual Meetup is our live online community event where we explore different key topics in the crypto sphere and invite industry leaders to share their two satoshis.
In this meetup, we talked to Alex Svanevik, Arthur Cheong and Larry Cermak on the direction of Ethereum, the state of DeFi, privacy, and the increase in institutional adoption.
Where is Ethereum going and should they worry about killer chains?
The two main areas of focus for Ethereum this year are Layer2 (how different protocols react with each other) and Ethereum 2.0. With the Beacon Chain launch on Ethereum 2.0, many projects need to adapt to it to start staking pools on the ecosystem.
In terms of killer chains, Arthur thought that Etheruem has nothing to worry about. Most of the DeFi projects that started on Ethereum will continue using it as their home base. The main reason is that there are virtually no users on other projects and if there were, the economic activity wouldn't be able to support the ecosystem.
Larry further added that it's hard to replicate the Ethereum network with their strong set of developers, assets and capital. Besides that, one would need to use Ethereum to interact with the DeFi protocols. It's no longer just onboarding ICOs like in 2017.
How will the state of DeFi be in 2021?
Arthur was already seeing key leaders emerging in the lending & borrowing landscape which are Aave and Compound. In terms of spot DEXs, he saw Uniswap leading the game as there are more users on here than any other DEXs. He also added that liquidity mining will be more prominent and fiat stablecoins will continue to expand.
Larry also thought that it's now a good time to pay attention to different DeFi protocols but he saw no clear winner yet. For example, while Synthetix has a high market cap, it has low user activity.
Will there be more KYC and Privacy in 2021?
In terms of KYC, there's currently no real threat from regulators anytime soon. In terms of privacy, although there is an increase in awareness, there is yet to be any adoption of privacy features on any chains.
Alex added that the flipside to privacy is transparency. Protocols would need to decide what sort of privacy to be implemented and what can be considered transparency in a positive way. An anecdotal experience on Ethereum showed that traders are interested in transparency but would still like to maintain privacy.
Larry was blunter in saying that Ethereum is struggling with privacy. However, this would change in the future despite the case that users don't care so much about privacy because of the freedom to dox others.
"Privacy is something that all of us wish we have," said Arthur. Furthermore, it would be harder for the entire ecosystem to use and support a privacy coin.
Why is it more difficult for Retail Users to participate in on-chain activities?
Alex observed that the process of getting active on Ethereum has become more convoluted compared to that in 2017 due to Yield Farming and other schemes. So it has become more difficult for retail users to participate. Moreover, stablecoin transactions have become larger because fees are more congested. Due to the economics of the protocol, it no longer makes sense to send $10 on the chain as larger transactions are driven to take up more bandwidth on the network. We're now seeing 10% of transactions being less than $100 as compared to 30% a few years back.
"We need to keep in mind why we want to replace the financial foundation and have inclusive financial solutions," reminded Alex.
If the industry wants to see massive retail adoption, the way forward is the adoption of crypto by fintech players as well as the mainstream application of DeFi savings protocols.
Larry agreed with Alex's points and added that a riskier but higher yield investment would attract retail users.
Are we ready for a market that trades publicly-traded crypto companies?
While it may seem volatile to get listed, Larry didn't think that it's going to be as volatile as Bitcoin. Retail users wouldn't be concerned with volatility but stakes and returns are going to be much higher.
Arthur saw this as a capital market game as there is unprecedented money issuing by central banks. They just want to allocate money on risk assets and get favorable valuation with the bull market.
What will 2021 be like for cryptocurrency?
Institutional adoption is expected to be the highlight of 2021, though Arthur has reservations with the term. He is also seeing more people starting to do their research, believe and adopt cryptocurrency. There may also be more mainstream integration and adoption in terms of asset allocation. Fintech companies would also be more open to integrating DeFi to their users.
Besides that, Larry foresees growth in derivatives and stablecoins. Currently, 90% of stablecoins are used for crypto use cases but that will change this year. Moreover, Larry is more optimistic about the kinds of people in the crypto space. Back in 2017, he was discouraged by people who didn't have good intentions. Now, he is seeing Stanford and Harvard PhD students applying for research positions on The Block.
In addition to institutional adoption, Alex also predicts that Ethereum will continue to grow as that's where organic user activity is.
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Diyana helps you to make sense of the complicated stuff. Follow the author on Twitter @diyana_eco