Decentralized Finance (DeFi) is one of the latest trends in the crypto space and has proven a significant value proposition to survive post the summer bull run. This ecosystem grew by thousands in percentage when governance tokens affiliated to DeFi projects started launching in May. Today, over $13 billion has been locked within DeFi protocols according to DeFi Pulse metrics; the space is in fact moving to a more innovative focused industry as opposed to its previously speculative nature.
While the DeFi concept may sound jargon at first interaction, the underlying ideas are pretty simple for anyone with some basics about traditional finance. DeFi innovations basically combine the world of decentralization and traditional finance to create an ecosystem where participants can interact directly, hence eliminating the need for third parties. This nascent industry has thrived in the past few months as more stakeholders contribute to bootstrap its growth.
One of the major players in pushing the real economy to embrace DeFi has been the crypto community, especially from the incentives that are integrated alongside this new class of Finance. DeFi projects have become popular for ‘yield farming’ which is basically a form of liquidity provision to earn higher yields than in traditional markets. Also, these innovations have built governance tokens which act as rewards and have embedded voting rights.
The rise of DeFi gave path to the decentralization of most financial products that exist in today’s markets. To support these ideas, yield farming was born and is currently one of the most effective tools towards growing DeFi adoption. Stakers in the summer were yielding hundreds of thousands in some farms when the craze was still on. While there was a form of market correction, decent projects in DeFi are still offering lucrative yield farming incentives for liquidity pooling on Uniswap and rival Sushiswap.
Take for instance, a project dubbed ‘OnigiriSwap’ which borrows its name from the unpretentious Japanese rice balls delicacy. This innovation is an Automated Market Maker (AMM) protocol built on the Ethereum blockchain and decentralized by nature through the $ONIGIRI governance token. OnigiriSwap provides a couple of yield farming pools on Uniswap where stakers can realize APY as high as 1,800% to be harvested in the $ONIGIRI governance token.
Being an incentive for early participants, the $ONIGIRI governance token is built in a similar manner to most DeFi tokens that are designed to attract liquidity and empower the community with voting rights. This particular token allows the OnigiriSwap community to make crucial decisions such as sun setting the minting process to preserve $ONIGIRI value.
As for the tokenomics, OnigiriSwap’s governance token follows a deflationary model which means that block rewards reduce progressively. This protocol is built to mint and distribute 20 $ONIGIRI tokens per block; the rewards half after every 100,000 blocks until when its community will take a vote on whether to stop the minting process.
While these types of digital assets are closely tied or complete the yield farming cycle, they also play an independent role in advocating the adoption of DeFi. Uniswap which is currently the leading DEX with a Total Value Locked (TVL) of $1.27 billion recently ended its rewards program, but continues to dominate this niche. Well, this could be attributed to the value proposition of its governance token ‘UNI’ which gives holders the voting right to pass or reject proposals to amend the protocol.
With governance tokens in place, DeFi appears to be thriving and increasingly decentralized as more people join the ecosystem. Some tokens like Yearn Finance (YFI) are now considered DeFi blue chips for retaining a good part of their value when the craze ended in September. Notably, early entrants who hold DeFi governance tokens are exposed to more value in that they get to make key decisions which may eventually dictate the success of a given DeFi protocol.
The DeFi niche is quite promising and probably one of the most vibrant crypto trends over the past year. That said, its momentum from a fundamental perspective is just getting fired up and likely to surpass the amount of innovation that we’ve seen so far. Industry diehards like Binance CEO, Changpeng Zhao, are on record saying that DeFi is here to stay despite the ongoing ‘bubble’,
“a lot of DeFi projects are already in a bubble, and I also believe that there are some signs of a bubble in the DeFi industry, but this does not mean that DeFi will eventually disappear entirely.”
Meanwhile, efforts by the crypto community have not gone unnoticed by the larger mainstream market. This is just a confirmation that yield farming and governance token models are serving their purpose in pushing DeFi adoption. In as much as the rewards programs are temporary and favor early entrants, this is an area where the crypto community is reaping big.