Next Wave of DeFi Growth Incoming
The Intelligent Insurer #11 — What accredited investors are planning to do with DeFi in 2021.
With significant appreciation in the Bitcoin market, mainstream investors are starting to turn to decentralized finance (DeFi) projects. Moves like these do not come as a surprise, considering the issues that many DeFi projects are addressing. Moreover, the returns in the Bitcoin market are increasing the risk appetite of investors and turning them to more uncertain ventures.
In this latest version of Intelligent Insurer, we will highlight the disposition of investors towards DeFi projects, and how to avoid slippery slopes while making investment decisions. Apart from the well-known risks that are associated with the digital assets ecosystem, the nascency of this industry could pose a huge problem. Inadequate understanding of given projects among other risks are factors that investors must look out for ahead of their entry into the DeFi market.
More DeFi Explosion Expected in 2021
According to reports, 72% of U.S. accredited investors already plan to invest in DeFi in 2021. This comes from a survey that was carried out by Xangle that investigated over 350 investors in this category. The DeFi market has been undergoing exponential growth and the intentions of accredited investors may result in this exponential curve continuing. The number of unique DeFi addresses recently surpassed the 1.2 million mark.
(Source: duneanalytics.com)
Lucrative rewards have also been acting as an incentive driving DeFi adoption. There has been an astronomical rise in Interest Per Year (IPY) value on DeFi lending over the past year. From an IPY of $5.3M in March 2020, the total IPY at the time of writing is at $516.3M, having previously reached an all-time high (ATH) of $852.3M.
(Source: defipulse.com)
Signals around the industry point towards the introduction of a new season in DeFi that may be similar to the ICO era of 2017. Public sales of DeFi tokens reminiscent 2017 ICOs are already emerging. Huobi’s recent integration of Kava sold out in less than 5 minutes is one example. The events and effects of ICOs on the cryptocurrency market are popular and well documented. The difference this time around will depend on the increased level of knowledge, awareness, and preparedness of users.
Several other DeFi projects are springing up that investors may like to explore based on their return on investment (ROI) potentials. Available reports show that investors that provide liquidity on DeFi assets in some cases are generating up to 400% annual interest on their investments. These are the kinds of details that are attracting an influx of investors towards DeFi.
Investors Must Prepare Against Imminent Risks in DeFi
Despite its rapid growth, DeFi is a relatively new innovation. DeFi investors remain exposed to significant risks. A lack of proper risk management could be costly. Recently, a DeFi user lost almost $190,000 by mistakenly sending SUSHI tokens to the project’s smart contract instead of a liquidity pool.
Other risky aspects of the DeFi marketplace include the rampant hacks, protocol exploits, rug pulls, and the risks associated with the stablecoins that provide a significant portion of liquidity. As highlighted above, these are the kind of dangers that users were exposed to during the ICO boom of 2017. However, this time around, the cryptocurrency industry is better prepared. There are insurance solutions that can provide safety nets against adverse events.
Available insurance solutions that cater to the needs of investors in DeFi and cryptocurrencies include Nexus Mutual, Cover Protocol, Opium Insurance, and several others. Most of these platforms offer generalized insurance solutions with limited cover. Popular risks like exchange hacks and stablecoin defaults may be covered, but certain other risks that are peculiar to individual users are oftentimes overlooked or categorically ignored.
With Insured Finance appearing on the scene, full insurance cover can be provided for cryptocurrency users, especially as we enter a new phase of adoption in DeFi. Cryptocurrency risk exposure can be inexhaustible and could vary among investors. Insured Finance tailored insurance marketplace is the perfect fit for cryptocurrency users with diverse portfolios.
While the outlook for the DeFi market is looking very promising, the inherent risks must not be ignored. Digital asset insurance solutions have become a necessity, especially when dealing with a nascent part of the crypto asset market.
About Insured Finance
Insured Finance is a decentralized, peer-to-peer insurance marketplace. Built on the Polkadot blockchain, Insured Finance users can request customized insurance on a wide variety of digital assets. Those that fulfill requests earn premiums and can earn a competitive return on their capital. Claims are fully collateralized and settled instantly.
