The birth of RDeFi, will the summer of DeFi make a comeback?

Original Author: Darius Moukhtarzade, Analyst at Digital Asset Bank Sygnum

Original Title: 《Outlook 2022: Will the Summer of DeFi Return?》

Original Compilation: Nan Feng, Unitimes

There is no doubt that NFTs received the most attention in the crypto space in 2021.

While some market observers had predicted its rising popularity and usage not long ago, the rapid adoption among both traditional and crypto-native participants surprised most of us.

The hype surrounding punks, apes, and rocks even overshadowed the thriving DeFi industry.

However, I expect DeFi to regain the spotlight in 2022, experiencing a second "DeFi summer" like in 2020.

There are two main reasons for this:

1) Yield opportunities may become more sought after, especially in a sideways or bear market scenario.

2) The establishment of a regulated version of DeFi, which I call RDeFi.

Attractive Yield Opportunities

Since the "DeFi summer" of 2020, many new and innovative projects have emerged, while established projects have further developed their products.

One trend we have seen in 2021, particularly in the first half, is the emergence of different types of yield generation.

DeFi offers very attractive yield opportunities, ranging from conservative products with 3-5% returns to more aggressive stablecoin yields of 30-40%, depending on the investor's risk appetite.

Many newcomers to the crypto space who entered during the recent bull market will begin to explore DeFi.

For some, this will be the "traditional" path from Bitcoin to Ethereum and then to DeFi.

For others, it will be from NFTs to Ethereum and then to DeFi.

Regardless of how one enters DeFi, the outcome is the same: an increase in DeFi adoption, which could lead to the arrival of DeFi 2.0 summer.

Avoiding High Gas Fees

Despite the ETH 2.0 upgrade plan taking place in the first half of this year, I believe Ethereum will still handle very high network fees for most of the year.

This will not deter DeFi adoption but will encourage investors to use more Layer 2 scaling solutions.

For example, Arbitrum, Polygon, or Optimism, as well as other smart contract platforms like Polkadot, Solana, Avalanche, or Terra.

I am very excited about Polkadot's DeFi platform Acala, which recently became one of the first projects to secure a parachain slot on Polkadot.

Additionally, Solana, which has gained a significant share of NFTs due to lower network fees, will be interesting.

Its high TPS and scalability allow for DeFi applications that Ethereum cannot achieve.

The Emergence of "RDeFi"

I believe we will see the emergence of RDeFi (Regulated DeFi) in 2022.

For some, this may sound a bit contradictory, but I see it as the next evolution of DeFi.

I expect that alongside the DeFi we all know and love, there will be a parallel DeFi space with a regulated wrapper that complies with traditional financial regulatory requirements.

This RDeFi can only be accessed through the same "KYC" processes used for traditional investment tools and must meet the same anti-money laundering standards.

We have already seen early examples of RDeFi projects in 2021, with lending protocols Aave and Compound offering compliant versions of their platforms, AaveArc and Compound Treasury, respectively.

This trend may continue, and I expect other types of DeFi projects, such as DEXs, to also offer regulated versions of their platforms; I would not be surprised to see a Uniswap Pro version next year.

I also hope to see more projects that are compliant from the start, such as Swarm Markets, which received regulatory approval from the German regulator BaFin earlier this year and operates as the first regulated DEX.

Furthermore, I expect large exchanges like Coinbase or Kraken to provide their investors access to DeFi applications through regulated gateways.

By using centralized exchanges, they can avoid the burden of self-custody and private key management, allowing them to offer DeFi platforms without requiring users to download a web wallet or interact directly with dApps.

Such products will bring further adoption and liquidity to the space.

While some crypto experts may argue that DeFi applications with KYC requirements contradict the spirit of decentralized finance, I prefer to define DeFi as an owner-operator economic model rather than a service provided by profit-driven entities.

The conditions for obtaining services do not change the economic model. The products offered by RDeFi develop a new customer base for these platforms that regulated financial institutions will not be able to interact with.

Additionally, regulation can enhance customer protection and hold platforms accountable, which may also be preferred by those who are limited by unregulated services.

I believe this development will contribute to the maturation of the space. RDeFi will play a key role in further increasing the liquidity of DeFi platforms, as it is essentially the only way for regulators to enter the space.

In Conclusion

While I expect NFTs to continue attracting interest, especially considering their connection to the metaverse and blockchain-based gaming, I believe the DeFi space will also regain some attention. DeFi has matured over the past year; while it remains a highly innovative field, it has been continuously maturing over the past year. High yield opportunities will continue to attract investors, while RDeFi will elevate DeFi to another level, increasing adoption and liquidity.