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5 Emerging DeFi Trends Defining Crypto in 2022

DefiMobile
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With markets open 24/7 and top talent switching to web3 every day, web3 and DeFi are moving quickly.

We've seen the rise of L2s (plus L1s like Terra), an institutional response to investment fraud, and heated debates around the perks and pitfalls of decentralized governance.

It can be exhausting to try and keep up with everything going on. Let's walk you through some of the biggest DeFi Trends of 2022.

L2s Take Off

In recent months, layer 2 solutions have seen massive adoption within the Ethereum community as users flee L1 gas costs, and more feasible protocols emerge.

There are three major L2s you should know about:

1.) Optimism

DeFi Optimism
Optimism

It made headlines last year as the first Ethereum rollup to announce a mainnet release. This is huge news for DeFi.

They are dedicated to fast and cheap transactions. This L2 boasts over $1 billion saved on user fees since its mainnet launch.

Their main tagline is "by the community for the community." In the spirit of web3, the protocol is also open-source code. This attracts some of the biggest dApps in DeFi.

2.) Arbitrum

DeFi Arbitrum logo
Arbitrum

It is Offchain Labs' forked iteration of Optimism's open-source code. 

It relies on the security provided by Ethereum. Although, they enact an independent multi-round fraud-proof. By limiting the required L1 execution, they can achieve a higher transaction capacity. Great for DeFi applications.

3.) Polygon

DeFi Polygon Logo
Polygon

It works as a sidechain to Ethereum. It's comprised of multiple blockchains which are highly interoperable. They benefit from Ethereum's network effects, security, and power.

Several other blockchains have taken similar multi-chain approaches, including Avalanche and Polkadot, though only Polygon benefits from the Ethereum infrastructure.

Ascension of Terra Network

DeFi terra ico logo freelogovectors.net
Terraform Labs

Terraform Labs received a lot of press over the past months for their decentralized blockchain, Terra. The network operates as a peer-to-peer electronic cash system. This is done by deploying a system of stable coins, including UST, powered by the native token, Luna.

Adoption of the UST stablecoin, which is now one of the top stablecoins, drives the price action of Luna, jumping from .66 to $89 in 2021.

Ethereum has struggled to change from a proof of work system. The Terra network emerged as a worthwhile adversary. This blockchain operates on a proof of stake system. As a result, this gives unique utility to its native token.

I know the most brilliant DeFi devs are bullish on Terra (not financial advice ;)).

Institutional Response to Fraudulent Activity

We all know fraud is too common in burgeoning industries, sparking pressure from inside and outside the community to hold bad actors accountable and prevent future fraudulent behavior.

Despite institutional claims of danger within web3, blockchain technology makes it increasingly difficult to commit fraud. All transactions are on-chain and verifiable. 

Amateur Twitter sleuths are exposing the sketchy pasts of prominent project leaders. They are slowly bringing to light many fraudsters, like Wonderland's 0xsifu. But peer pressure might not be enough to stop bad actors from taking advantage.


U.S. President Biden proposed executive order on the responsible development of digital assets. The community responded well to the legislation, as it signaled Washington's growing interest and legitimization of on-chain tech rather than stringent regulation.

(De)Centralization

Blockchain data processing concept
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Decentralization refers to the dispersion of power or governance among participants. It is often a remedy for corrupt centralized control. It demonstrates unparalleled security against outside forces.

Decentralized networks are challenging to compromise because there is no central database. They are also permissionless. A small circle of valuable stakeholders cannot add or remove participants.

The downside of decentralized blockchains? Reliance upon consensus and lack of support.

Fully decentralized technology experience a lag in governance and decision-making compared to its centralized counterpart. You pay Coinbase fees for the convenience of its customer support (lol) and some guarantee of protection over your money (though tenuous).

Centralization allows products and marketplaces to make faster decision-making.

That's great for innovation. But humans are more fallible and fickle than code. As a limit to vulnerability, most web3 tools and protocols operate somewhere within the (de)centralization spectrum.

The debate between centralized and decentralized systems will only intensify as mainstream users enter the crypto arena with a craving for convenience.

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