Cryptocurrencies are often called speculative investment options because of their volatility and absence of traditional regulatory structures. However, a new report from Codefi suggests that crypto investors are interested in decentralized finance and its possibilities as well.
Though cryptocurrencies are still not widely accepted at merchant outlets and payment gateways, they have started to make a difference. Consensys-backed blockchain operating system of global commerce and finance, Codefi, understands these challenges better.
The firm suggests,
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“Bankers and institutional investors especially remain conservative in their approach, citing a lack of regulatory oversight, and the failure of Bitcoin to evolve as a unit of account, medium of exchange or store of value, not to mention the absence of regular accountability and central bank guarantees.”
Decentralized finance (or DeFi) is quickly taking over the imagination of crypto investors, who are now opening up to the possibility of bank-like internet earning accounts and crypto-backed loans. Codefi suggests that this has helped in creating a new financial architecture that goes beyond third parties and centralized systems.
DeFi is expanding
According to the company, decentralized finance is expanding rapidly and there are several new platforms and tools being launched on a daily basis. These developments are often plagued by some myths surrounding DeFi.
One of the biggest myths in the sector is that people are motivated by speculation and profits in trading cryptocurrencies. In reality, investors are interested in the underlying technology of cryptocurrencies and their potential practical uses.
Investors regularly follow online discussions and keep a track on what is building and where. They are also very cautious about experimenting. In general, they like to try out a protocol with a small amount before they invest larger amounts.
The report revealed that the crypto investors who open collateralized debt positions (CDPs) do mainly for testing purposes. These CDPs work like smart contracts and are executed on the Ethereum blockchain network. It noted that 19 out of every 20 CDPs are opened only for testing. Their value is also low, i.e. below 0.00058 ETH.
Codefi also notes that crypto whales are interested in scaling CDP use. That is why 5% of all CDPs are collateralized at amounts worth 1000 ETH or $4.5 million. The report states that CDPs can provide an alternative to the other slow, inefficient and expensive money transferring measures which may take as many as three working days.