Uniswap’s secret of success and the future of DeFi

  • Not all DeFi projects will survive.
  • Experts believe the market needs decentralized finance.
  • To make money on DeFi, you need to know how to choose startups.

The decentralized finance (DeFi) market continues to gain in popularity. While some are using new opportunities to earn money, others are studying the prospects for the development of a new industry. What do experts think about the future of DeFi?

Tatiana Maksimenko, the official representative of the Garantex exchange, noted that the DeFi market, in general, is still in its infancy. Therefore, many startups, in her opinion, are difficult to assess in terms of survival over a long period of time. At the same time, Tatiana Maksimenko called Uniswap one of the most promising projects in this area.

“The reason is that this is an infrastructure project. This is a decentralized trading platform where tokens of new DeFi projects are placed. The latter, often, are not yet included in the listings of large centralized crypto exchanges. Therefore, even if some of the DeFi projects disappear, the trading platform where their tokens are traded will most likely continue to work, ”the expert noted.

The graph reflects the amount of funds that were blocked for the needs of DeFi projects. Data: DeFi Pulse

Such a process, in her opinion, can be compared with the work of large crypto-exchanges, which, despite the crypto winter 2018-2019, did not stop working, but continued to make profits even in a falling market.

The tokens of the same Binance, noted Tatyana Maksimenko, continued to grow, and few investors will now say that they regret investing in BNB at an early stage. Therefore, a part of the investment portfolio, in her opinion, is definitely worth investing in UNI. The expert is sure that the correct risk profiling will help to determine the share of such investments.

The decentralized finance market itself, in her opinion, will definitely continue to develop. As one of the reasons, Tatyana Maksimenko named the orientation towards reformatting the debt capital market towards its decentralization.

The expert believes that the demand for such instruments has been accumulating in the financial market for decades. At the same time, in her opinion, it is rash to say that all DeFi projects launched this year will grow and find their niche in the market.

“Some will definitely die out as not in demand, and some, alas, have an obvious fraudulent foundation. Therefore, the choice of DeFi projects should be approached carefully, ”said the official representative of the Garantex exchange.

Rating of the top 10 DeFi projects by the number of funds blocked for their needs. Data: DeFi Pulse

First of all, according to Tatiana Maksimenko, it is necessary to look at how much the project is really decentralized and is able to continue to exist even in the event of the disintegration of the founding team. The expert attributed the following to other points to which attention should be paid:

  • Is it open source?
  • Has the project passed an independent technical audit?

Among the examples of how investors are recklessly acting without reading these parameters, Tatyana Maksimenko highlighted the DeFi project SushiSwap. After verification, the expert noted, the platform turned out to be an ill-conceived and partly fraudulent fork of the Uniswap decentralized exchange.

“When choosing a DeFi project, you should study its application areas and pricing models. You also need to have an idea of the functioning of various derivative instruments, ”summed up Tatiana Maksimenko.

Dmitry Volkov, CTO of the international cryptoexchange CEX.IO, in turn, noted that the decentralized finance market is an ecosystem of various financial services. According to the expert, their main difference from classic services is the absence of a single central body that manages work processes at its own discretion.

A decentralized approach, in his opinion, significantly increases the level of community confidence in such projects. As an example, which embodied the positive sides of the approach, he cited the largest decentralized cryptocurrency exchange service Uniswap.

A graph that reflects the amount of funds blocked for the needs of Uniswap. Data: DeFi Pulse

“The essence of this service is that some people on it can exchange cryptocurrency and pay a commission for it, while other people can provide a possible exchange of cryptocurrency and they receive a reward for this with a commission paid by other users,” the expert explained the principle of the platform.

People liked the opportunity to receive rewards simply by providing capital as a tool for investment. This, he believes, can explain the willingness to provide capital to the service from the members of the crypto community.

“The users were confident that it is safe to transfer capital to such a service, since the funds are not stored by a person or a company, but by a program that works according to a specific algorithm. Assets cannot be simply stolen or used for other purposes, because such actions are not envisaged by the program code,” – this is how Dmitry Volkov explained the platform’s popularity.

The expert also drew attention to the fact that recently the Uniswap service had a competitor – SushiSwap. His team has created a similar trading platform. The users of the new decentralized exchange were offered increased rewards and some new features. An important difference between SushiSwap and Uniswap was the presence of its own governance token.

A graph showing the amount of funds blocked for the needs of SushiSwap. Data: DeFi Pulse

“This made SushiSwap even more decentralized compared to Uniswap,” the expert noted, adding that management of tokens can be compared to shares in public companies, where each asset owner has a vote and can influence the decisions of the company’s management.

According to Dmitry Volkov, the SushiSwap team set a specific goal – to entice investors from Uniswap, providing more income to them. He is confident that the developers have coped with the task.

The next step in the development of the struggle between platforms, as the expert noted, was the creation of a management token for the Uniswap service. The coin was named UNI. Dmitry Volkov noted that in the first days after its creation, the token doubled in price.

Uniswap Token Information – UNI. Source: CoinMarketCap

“The demand for this token and the community’s trust in Uniswap were so great that in the early days, UNI was added to the listings of large regulated digital asset exchanges. For example, Coinbase and CEX.IO. At the same time, the procedure for adding a token to these platforms usually requires much more time and effort, “said the CTO of CEX.IO.

The quick listing of the token on major exchanges, in his opinion, confirms the high demand, interest in UNI and the trust of the crypto community in Uniswap, and also reflects investor confidence in the future development of Uniswap.

UNI chart. Source: CoinMarketCap

“At the same time, it should be added that specifically now the UNI token does not generate income. Its price has a very high speculative component due to the hype. This all increases the risks of investing in such a token. But high risk and hype usually do not scare investors with an aggressive risky strategy, since this is offset by the high expected return of such investments,” concluded Dmitry Volkov.

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