Since its infancy, the focus of the blockchain industry has been on the application of technology. Modern finance is so deep-rooted that the progress of large-scale application of blockchain is very slow. However, the change of the times is always slow and firm, and after the hardship of 2018 and the downturn of 2019, there is some new hope for the whole industry this year.
Below, we focus on some of the most promising areas of the currency circle, making it easier for you to measure our current position and add some basis for judging future trends.
Encrypted currency payment.
Bitcoin first pointed out in the white paper that the main driving force behind the widespread use of cryptocurrency is to use it.
In the past, mainstream people have always been skeptical about cryptocurrencies such as bitcoin. It is reminiscent of a “black market currency” rather than a “peer-to-peer currency” for everyday consumers. The New York Times even wrote in January 2021 that the trading of bitcoin on the black market reached an all-time high. However, with new developments in application, this perception is changing.
Many cryptocurrencies have tried to position themselves as a “currency substitute”, hoping that consumers can use it like cash in convenience stores. It has proved extremely difficult to realize this idea. Not only the HODL mentality is common, but also the extreme fluctuations in the cryptocurrency market often hinder users’ consumption behavior.
The number of users using cryptocurrencies has increased significantly since 2013. Blockchain analytics firm Chainalysis found that consumers spent an average of $190 million a month on cryptocurrency in 2017, up from $9.8 million in 2013.
The use of cryptocurrency wallets has also tripled in the past three years. The current environment seems to be laying the groundwork for cryptocurrency payments.
In 2021, there are two main areas to promote the popularity of cryptocurrency payments.
One area is cryptocurrency prepaid cards. Although there have been such cards in the past, it was not until June 2021 that the United States approved the first legal prepaid card. This year, MasterCard partnered with BitPay to launch a cryptocurrency prepaid card that allows users to convert cryptocurrency into legal currency and use their cryptocurrency wherever MasterCard is accepted.
On the other hand, some startups are promoting the field in new ways: consumer-to-cryptocurrency. The idea is simple: you can get bitcoin as a reward for buying items with a debit card.
In April 2021, San Francisco-based startup Fold teamed up with Visa to launch a Visa debit card whose holders can receive up to 20 per cent of bitcoin rewards for buying and using gift cards from merchants such as Starbucks and Uber.
In response, will Reeves, CEO of Fold, said: “if people don’t think Bitcoin is a currency, in this way, they will understand that it is a better return.”
This reward-based system solves two problems. First of all, it does not have to pay taxes because cryptocurrencies are not consumed. Second, it avoids the issue of bitcoin transaction fees and slow recognition by accumulating bitcoin in return.
In fact, it is also possible to popularize bitcoin and other cryptocurrencies to a whole new group of consumers. Now many companies have plans to issue similar credit cards to combine cryptocurrency with daily payments.
Although cryptocurrency payment is promising, it is not the main driving force behind the development of the currency circle. At this time, another area is becoming increasingly prominent-DeFi.
Ethernet Square and DeFi.
COMP’s market capitalization soared to $500m in just two weeks, forcing everyone in the circle to take DeFi seriously.
There is no denying that DeFi has injected new vitality into the currency circle. It omits the role of middleman in traditional finance and decentralizes the rights of the financial system. So specifically, how does DeFi help promote the popularity of cryptocurrencies?
The ultimate goal of DeFi is to replace some of the “traditional” financial systems that are monopolized by several entities. It provides an untrusted environment for financial transactions, and people do not need to trust anyone or company when trading, which saves users a lot of money and time, and gives everyone control over their own financial assets.
There are many different forms of application of DeFi, and it is precisely because this field is so widespread that we begin to redefine the entire financial system as we know it.
DeFi completely excludes intermediate roles such as banks, decentralizing the lending process, thereby reducing borrowers’ fees.
Apps such as Compound (COMP) have been driving the popularity of decentralized lending, where users are free to borrow assets and earn interest on deposits. In Maker DAO (MKR), for example, users can mortgage assets to lend DAI (a stable currency pegged to the dollar). Usually, bitcoin anchored coins (such as WBTC) on Ethernet Square are used as collateral for loans.
So far, loan projects account for a large proportion of DeFi. COMP alone accounts for about 36 per cent of the market, and the demand for borrowing is growing, which was evident in May and June 2021.
- Asset management and transaction.
One of the important components of finance is asset management and trading. In the current financial system, asset management is very common and mature, but management intermediaries will get a piece of the pie and dominate the financial market through their decisions. This process is often opaque, and DeFi offers a new option.
For example, Balancer (BAL), is an automated portfolio manager that provides liquidity of assets through automatic market maker agreements. Another example is Melon, which allows users to create their own investment funds, and other users can also participate in this fund, which makes the investment more popular.
In fact, these two projects have been under development for many years, and their user base has only begun to grow significantly this year.
- Other innovative products.
Some new DeFi applications appeared in 2021.
For example, insurance, which is in a very early stage, allows users to raise money through smart contracts to provide insurance for individuals. Others, such as forecast markets, encrypted synthetic assets and decentralized derivatives trading, have seen new growth in 2021.
At present, loan and asset management users are the largest user group of DeFi. Over time, as more and more startups emerge, DeFi is expected to have more innovation.
- How to measure the adoption rate of DeFi?
One way to measure the development of DeFi is to look at the total value of assets locked in DeFi. As of July 12, the amount of assets locked in DeFi was about $2.29 billion, a record for the sector.
Another way to measure DeFi is to observe the growth of some platforms. At the time of this writing, for example, the number of assets locked in Synthetix increased by 9.97 per cent, and as of July, the platform focused on ethernet derivatives was the biggest winner in DeFi.
There is another simpler way to measure DeFi growth. Since almost all DeFi is currently on Ethernet Square, people can assess growth through the chain indicators of Ethernet Square, such as wallet growth, changes in payment fees and the number of daily transactions.
In this respect, Tai Fong seems to be getting stronger and stronger. On June 29th, the number of daily active addresses in Yi Tai Fong exceeded 466000, reaching an all-time high. Although the daily trading volume has not yet exceeded the highest level in history, the growth during this period is more natural than the growth seen in late 2017 and early 2018.
Overall, ethernet’s user base is growing, DeFi lock-in assets are growing, and many of the projects currently being built clearly show that we are in a new stage of application.
Stable currency and CBDC.
Recently, countries are competing to issue their own central bank digital currency (CBDC), this new field will undoubtedly have a great advantage on the world stage.
CBDC is easy to use, extremely low cost, and can replace the dollar-dominated world economy, so all countries are stepping up efforts to issue their own CBDC.
However, not only all the stable currencies of CBDC– will grow rapidly in 2021. This is because the stable currency is the bridge between the blockchain world and the traditional economy. The bridge, which has a monetary attribute, could be an important catalyst for the popularity of blockchain in the 2021s.
2021 will be an explosive year for USDT. Since the second half of 2019, Teda has had the highest daily trading volume in the cryptocurrency market, even surpassing Bitcoin.
As of July 12, USDT had a market capitalization of more than $9 billion. Just a few months ago, it had a market capitalization of only $6 billion. The market capitalization of USDC, a stable currency backed by Coinbase, is also close to $1 billion. In short, the stable currency sector is growing-but this is not surprising to those who normally focus on it.
It was reported in January 2021 that about $6 billion was on the sidelines, ready to enter the currency circle. According to many estimates, the money (or more) seems to have actually entered the market.
The explosive growth of stable currencies in 2021 is another sign that we are in a new stage of development. USDC, USDT, BUSD and other stable currencies have all increased, indicating greater demand from institutional investors.
At a hearing on “digitization of currencies and payments” by the US Senate Banking Committee, officials said they were concerned that the dollar could lag behind other countries if they moved quickly to digitize their own currencies. Today, the thinking of all countries in the world is the same: the arms race on CBDC has begun, and it is likely to determine the position of countries in the next decade. In other words, it is only a matter of time before stable currencies are used on a large scale.
China took the lead in issuing CBDC, while the United States found that encouraging stable currencies supported by the US dollar is helpful to further enhance the status of the US dollar in the blockchain industry. There is no doubt that the stable currency will also play a role in the application process of DeFi. It all comes together, and in the 2021s, stable currencies and CBDC will grow like never before.
ETF and investment funds.
In early June, a Fidelity digital asset survey found that 80 per cent of institutional investors thought cryptocurrencies were an “attractive” asset class. 91% of respondents said they expected cryptocurrencies to account for at least 0.5% of their portfolios over the next five years. In 2019, only 9% of American respondents said they would invest in digital assets. Today, that number has risen to 22 per cent.
The surge in interest in cryptocurrencies suggests that the financial world is becoming increasingly accustomed to cryptocurrencies. Many people believe that the rise in the price of bitcoin in 2019 may be the catalyst. The 2021 cryptocurrency hedge fund report released by PricewaterhouseCoopers and Elwood found that 63 per cent of cryptocurrency hedge funds were launched in 2018 and 2019:
“We estimate that the total asset management of global encrypted hedge funds will increase from $1 billion the previous year to more than $2 billion in 2019. The average size of asset management increased from $21.9 million to $44 million. “
One of the biggest success stories this year is grayscale investment.
Since Bitcoin was halved in mid-May, grayscale funds have bought nearly $500m worth of BTC, than miners have dug up during that time.
As of June 25, the investment firm had $4.1 billion in assets under management, up from $2.1 billion last year. It is worth noting that all hedge funds around the world hold nearly $3 trillion in assets.
As the head of cryptocurrency at PricewaterhouseCoopers puts it: “I expect encrypted hedge funds to grow significantly in the next few years, because for many institutional investors looking to enter this area, investing in encrypted funds is probably the simplest and most familiar entry point.”
On the other hand, Bitcoin ETF seems to have a long way to go. The Securities and Exchange Commission (SEC) (SEC) has repeatedly rejected requests to launch a bitcoin ETF for fear of being “manipulated by the market”.
The last time it was rejected was at the end of February 2021, when Wilshire Phoenix’s ETF application in New York was rejected. However, SEC commissioner Pierce disagreed with the decision, saying that SEC’s standards for bitcoin ETF were too high, which was not the case in other areas.
At present, the possibility of a bitcoin ETF launch is still slim. As the founder of DataTrek Research told CNBC, “before bitcoin ETF, you will first see the central bank’s cryptocurrency.”
In the world of hedge funds, there is still a lot of room for cryptocurrency development. The enthusiasm of institutional investors is a positive sign that cryptocurrencies are slowly but firmly becoming part of the financial world.
The 2021’s is the most important decade.
There are only a few frontier areas mentioned above, and the whole blockchain industry is actually growing rapidly. The 2021s are likely to be the most important decade for decentralized applications. Here are some predictions for the future:
- Once the scaling problem is resolved, the use of web3 applications increases rapidly.
two。. Data services will increasingly rely on block chain technology to record and transmit private information.
- Public transport will be connected to decentralized platforms to share locations. Sony announced in April 2021 that it was developing a block chain universal database, (BCDB).
- Global supply chains will find it more cost-effective to use blockchain technology to authenticate and track their products.
- Decentralized networks will promote the creation of smart cities. Dubai, for example, is trying to become the world’s first blockchain city.
In the future, the use cases on the blockchain will be as large as those on the Internet. Anything that relies on Internet infrastructure, be it data sharing, finance, supply chain or applications, will inevitably be attracted by blockchain technology.
This is where the potential lies, worrying that penetration may be too “short-sighted”. In fact, if blockchain technology proves to be able to expand and drive the next industrial revolution, everything will be turned upside down. Hope for upheaval has been shown in 2021, and this year is only the beginning of the entire 2021’s.