Crypto: DeFi, the biggest winner of the next bullish cycle?

Predictions regarding an upward trend in the crypto market seem to be confirmed. In any case, we see certain premises. Bitcoin (BTC), for example, has exploded the $35,000 resistance. A milestone that the asset had recently reached before falling in a context of fake news surrounding the approval of a Bitcoin Spot ETF. This bullish dynamic is not specific to BTC. When we look at data from the crypto platform CoinMarketCap, we see that in one week, 15 of the 20 most dynamic cryptos on the market increased in price. Could decentralized finance (DeFi) emerge as the big winner from this bullish outlook that is on the horizon? It could if certain conditions are met. This is what we will see in this article.

DeFi, winner of the next bullish cycle, if it stimulates financial inclusion

Analysts are unanimous in saying that decentralized finance (DeFi) could stand out as the big winner in the next bullish cycle of the crypto market. But achieving this result will not happen by chance.

According to them, DeFi must establish itself as an effective solution to resolve the endemic problems encountered by traditional finance (TradFi). One of these challenges is the weakness of financial inclusion on a global scale.

The figures on this subject are particularly worrying. According to World Bank data, at least 1.4 billion people around the world do not have access to a bank account.

All these individuals are thus deprived of the enjoyment of basic financial services. This results in the perpetuation of the cycle of poverty for these people, generally the least educated and living in rural areas.

There is therefore an urgent need for transformation of the financial ecosystem to address this problem. According to experts, DeFi is full of the potential needed to solve it, in particular because it relies on blockchain.

A crypto technology which, by its decentralized nature, offers relevant financial services, without necessarily going through a traditional bank account. The strategy of this crypto ecosystem must still adapt to financial needs.

DeFi must collaborate to eliminate financial barriers

As we mentioned previously, DeFi would be the winner of the next bullish cycle, if it contributes to financial inclusion through blockchain. This is the first step. The second will consist, for this sector, of supporting efforts intended to remove the barriers that ultimately impact adoption.

This is what Leora Klapper’s opinion on this subject suggests. According to this American economist working with the World Bank, one of the options for achieving this lies in public-private collaboration. His opinion is that a partnership between States and the private sector linked to DeFi and cryptos is necessary to inspire confidence in financial services. Without this cooperation, it is difficult to design tailor-made offers and create a solid and viable consumer protection framework.

“Governments and the private sector will need to work hand in hand to forge the policies and practices necessary to build trust in financial service providers, trust in the use of financial products, new concepts of suitable products, as well as a robust and enforceable consumer protection framework”declared the expert in particular.

It remains that to be a response to the challenges of the traditional financial ecosystem, DeFi must be part of the logic of submission to regulations. A question which, in the United States for example, has caused a lot of ink and saliva to flow. However, economic researcher Michael Casey is clear on this subject. DeFi and cryptos as a whole cannot gain ground in terms of adoption without integrating the regulatory situation.

“If they are to achieve mainstream adoption, DeFi and cryptocurrencies must incorporate some of the regulatory and self-regulatory practices that have brought functional stability to TradFi,” emphasized the researcher. The latter did not fail to call on the players in the global economy to explore “the solutions provided by DeFi and cryptocurrencies to its many problems”. Recent developments suggest that his call is not being ignored.

Indeed, the American banks JPMorgan Chase and Bank of America, for example, are actively exploring the possibilities offered by blockchain. Which seems to indicate a promising transition towards a financial ecosystem dominated by DeFi.

DeFi, a certain potential to benefit from the next bullish cycle?

It must be said that the exploration of DeFi by behemoths like JPMorgan Chase and Bank of America is indicative of the potential of this ecosystem. In a report discussing the transition from TradFi to DeFi, crypto platform Concordium indicates that ” the area [de la TradFi, Ndlr] could reduce up to 80% of what it currently spends on post-trade settlement fees by taking full advantage » of DeFi, based on blockchain technology.

According to the firm, between 17 and 24 billion dollars in international trade processing costs would be saved each year if this option were more favored. DeFi therefore has immense potential without context capable of reshaping the global financial landscape, offering a multitude of advantages compared to TradFi.

For Bank of America, the challenge of DeFi is to reach a level of development allowing tools to be made available to users to improve their experience. If it succeeds, the use and widespread adoption of DeFi applications should follow without problem.

“Increased adoption and usage would translate into increased revenue and appreciation for native cryptos if designed properly. These two elements can be reinvested in development”, declared the American banking institution. And to add: “While DeFi applications are immature, we are only in the early stages of a major shift in applications that could occur over the next 30 years.”

Conclusion

The crypto market seems to be entering a promising bullish cycle, notably thanks to the recent rise of bitcoin to $35,000. Decentralized finance (DeFi) could be the big beneficiary of this trend. To achieve this, it must resolve the problems of global financial inclusion. Its collaboration with governments seems vital to this end, in particular to build trust and establish reliable regulations. What is certain is that this crypto sector has the potential to play a major financial role in the decades to come.