Crypto Is about to Burst in 2021
2020 was an astonishing year for crypto. Most currencies proved their worth by demonstrating a firm growth in prices, especially ones related to DeFi. Decentralized finance has become the topic of the year — its explosive development has influenced the direction of literally everything that happened in the fintech industry throughout 2020. What should the crypto community expect in 2021? The hopes are high, but things never go without a bit of trouble.
They say that “DeFi” was the word of 2020. If so, then “diversification” is about to become one for 2021. The crypto industry is expected to fan out with the crypto community forced to witness two concurrent economic models settle. The first one will be based on “know your customer” procedures to ensure privacy through collecting ID information — the economic model used by assets like CBDC or currencies backed by corporations, among them USDC, Libra, etc.
The other economic branch will definitely stand out as it will choose a DeFi revolutionist — money Lego — as its basis with anonymous market participants stacking and iterating it. It may sound weird to many crypto fans accustomed to more traditional ways of fintech development. On the crossroads of the two pathways diversification seems to be the only decent way to manage the risks 2021 may bring to the surface.
Mistakes that are Not to Be Repeated
2020 was all about DeFi, mainly based on the Ethereum blockchain. A range of dummy cryptos with food-related names such as Sushi and outdated interfaces was born, but in other respects, DeFi was not a joke at all. It’s a multi-million industry with talented experts and the sharpest minds behind it.
The exciting part is, opposite to the illogical and old-fashioned maximalist approach used by layer 1 admirers, the DeFi-driven application layer is totally contrary and temporary. With decent electricity fees expenses, the switch from one platform to the other won’t be expensive but rather beneficial to participants that receive risk covering yields.
The most popular DeFi platforms such as Uniswap or Compound have witnessed a harsh fall of the value of assets locked within their platforms just at the moment when they got attacked by anonymously managed alternative projects proposing better financial terms to users who provide liquidity. These battles for liquidity have turned to examples of nearly classic market competition, for example, the one between Sushiswap and Uniswap. This is a perfect chance to see how explosively quick the advancement of DeFi is. Being the first and scalable is not enough anymore. What attracts users now are iteration, community involvement, significant remunerations and incentives, and bigger interest rates (meaning both interest in the project and interest received out of the project).
Users have been expressing a genuine interest in DeFi, yet many have done it with a fair share of cautiousness. Playing with yield farming and DAOs was fun for many, but it didn’t seem to go any further as institutional investors and central banks made firm steps toward corporate-backed assets. The crypto world has seen the biggest fintech experiment run by fast-developing Russia, Brazil, India and China, the latter rapidly evolving as a cryptocurrency big player by creating CBDC that can be used via WeChat. Brazil joined the move by launching their own payment platform representing a due competition to crypto payment services.
The national banks of different countries got down to launching studies, experiments, creating projects and discussing them with the public. CBDCs became the main narrative in governmental circles and the highlight of Singapore’s WAF Forum. CBDCs turned to a basis for bench marketing. China is working hard to elaborate its CBDCs-backed reserve currency project that is sure to see the light of day within the next few years.
The New 2021
2021 is going to become the year of layer 2 applications, and they won’t be introduced to the public as demo versions or funny experiments. The era of micro-economies is about to begin, and this will be game-changing. The world has turned toward crypto, and COVID-19 has become a wonderful trigger to it. Millions of people lost their jobs, but they joined the fintech sector and now earn a few times more on crypto-related technologies. Millions of investors resigned from the stock market and got involved with crypto assets that became a distinctive mark of the new culture along with decentralized finance, nonfungibles and yield farming.
As 2021 unfolds, investors and traders will be forced to figure out which way they’d like to go — decentralized crypto-authentic or centralized and corporate-backed.
2021 is going to introduce more anonymous developers of DAO-related projects, running tests with derivatives and reducing the gap between real-world finance and the digital economy. These two worlds have already started to get closer, for example with NFTs flooding the sector. Remembering that Pokemon is celebrating its 25th anniversary this, it’s reasonable that the next-gen games will surpass everything that has existed up to today by ways of meaning, quality, financial sophistication and overall impact.
Layer 2 evolution will trigger a faster development of mobile ecosystems with apps being 100% native, interacting with many apps that are highly used by people today: Facebook, WhatsApp, G Store, Apple Store, etc. This is where corporate-backed assets have a privilege over their opponent economic model as centralized networks are in a position to foster growth and innovation.
Integration
All throughout 2021, cryptocurrency projects will continue to merge and integrate. Recently, the first signals of the “Banker era” have emerged in the fintech industry as projects that merged and fell apart as in mergers and acquisitions. Some projects such as Yearn consolidate similar platforms under their umbrellas, creating larger and stronger entities, opening up new horizons for their communities. Some of them — like Aragon — go through a reintegration and split up to separate projects to fit in with customer or compliance requirements. These are only a few to name, and 2021 will bring more examples of integrations within the DeFi ecosystem.
Decentralized Finance will move in a flux of initiatives stacking on each other in the combination of most crypto-related features like exchanges, derivative strategies and so on. In the meantime, layer 1 fans will have to unify teams and assets to be able to compete with Ethereum’s growing presence. Another distinctive characteristic of 2021 will be a range of “crypto raids” initiated by users who invested money in projects that didn’t go any further after the initial coin offering in 2017 with investors claiming their dividends or selling crypto back to the project teams.
Corporate-backed Cryptocurrencies
For those who entered the fintech world to feel more independent and free, the year 2021 may not turn out in the best way. There doesn’t seem to be much freedom in the space that’s about to reinforce its privacy measures by launching KYC procedures and AML restrictions with centralization making it up for the time lost.
It’s highly recommended for all members of the crypto global public to bring to the attention all the innovations that CBDCs and corporate-backed assets carry. Many can argue that it’s irrational to build a whole separate industry based on decentralization and then take a step back to centralized systems, but these newly-emerging initiatives will definitely have a say in the crypto arena as they enforce adoption in much greater directions compared to what fintech has today. Some may perceive it as a step back, while it may be a broader expansion.
Seeing extremes only will never help to get the best return on invested time, assets and efforts.
The prices for most currencies are on the rise and have been for a considerable time recently, which is great for the sector, but it’s never issue-free. The number of new users that the industry experts were counting on has never been reached. On the contrary, it has been falling for quite some time.
There is little hope people will emerge due to the price records that the market experiences at the moment because the assets are mainly possessed by early investors and whales. The best way to go this year is to accept the necessity to find a compromise between KYC-compliant and revolutionarily decentralized paths.
As 2021 unfolds, investors and traders will be forced to figure out what way they’d like to go — decentralized crypto-authentic or centralized and corporate-backed. Building the infrastructural bridges between them may become a new niche in the saturated market.
Accepting the evolutions and developments that emerge with time is the only way to make things work. Maximalist approaches will never bring their fans to better terms, and they never have in the history of crypto. Seeing extremes only will never help to get the best return on invested time, assets and efforts. Diversification seems to be the only right way to manage assets at the time being, as well as keeping an open mind to all challenges and opportunities that the future may provide, especially standing on the crossroads of the new decade.
