The Rise of Decentralized Finance
More than one year passed since we were able to witness the “2020 DeFi Summer”, where Compound’s launch of the $COMP token and its subsequent liquidity mining campaign led to a wildfire of new Decentralized Finance (DeFi) projects.
Despite NFTs (non-fungible tokens) now dominating crypto media, DeFi has seen tremendous growth on every imaginable scale. The total value locked (TVL) in DeFi protocols – just on the Ethereum blockchain – reached more than $50 billion. We have seen countless new projects and new primitives in the space, covering every imaginable financial product from decentralized exchanges, borrowing & lending to fixed interest, social investment, and derivatives.
DeFi has grown from a wild experiment into a powerful force, fighting for a more transparent and accessible financial ecosystem. Also, the mainstream financial media recognized this, and so Decentralized Finance made the covers of The Economist and Forbes in 2021.
Hurdles Along The Way
Despite this mind-boggling growth, we still have a long way to go for DeFi to reach the level of openness and accessibility that many of its founders are dreaming about. For both heavy DeFi-users (so-called “Degens”) and less experienced people, their user journey is complex and paved with obstacles.
Especially new users are overwhelmed with the tools (e.g., web3.0 wallets), infrastructure (different layer 1 smart contract platforms), and the number of solutions and protocols to choose from.
However, even DeFi Degens are facing many challenges. Despite often having a clear plan which blockchain and protocol to use and having mastered the necessary tools, they struggle at the intersection between traditional finance (TradFi) and DeFi—bridging significant value in and out of the DeFi system (often referred to as FIAT on- and off-ramps). Even when users follow local regulations like KYC (Know Your Customer) & AML (Anti Money Laundering) and pay their taxes, many banks do not allow them to send money to or receive funds from crypto platforms.
The next challenge along their journey is the reliance on centralized crypto exchanges (CEX). As each user journey starts with FIAT at some point, CEXs are needed to convert traditional currencies into crypto assets – be it stablecoins like USDC, USDT, DAI, or UST or more volatile assets like ETH.
Exchanges are forced to collect KYC data and pose a centralized risk to funds and privacy through hacks or negligent handling of personal data.
Above mentioned stablecoins are controversial too, as they play a central role in crypto asset trading and underpin many popular DeFi protocols. They have seen staggering growth alongside the rise of DeFi, leading to a total market cap of more than $100 billion. However, most of the popular ones – accounting for more than 90% of the total market cap – are issued by a single authorites (e.g., Center issuing USDC and Tether issuing USDT) and leave a lot to be desired in terms of transparency.
Most widely used stablecoins are not 1:1 backed by USD dollar but rather by a reserve consisting of cash equivalents including commercial paper, government money market funds, loans, and corporate bonds as seen in the example of Tether below.
On the other side, there are many highly decentralized stablecoins in the market – some still highly experimental – like Terra’s algorithmic stablecoin UST, LUSD, Fei, or OlympusDAO’s Ohm. However, they do not have a significant market cap yet and often come with downsides like high over-collateralization or unwanted volatility.
How FluidFi and DeFi Bridge DAO Try to Help
Fluid Finance SA (FluidFi) – a Swiss-based and regulated financial service provider – and the DeFi Bridge DAO try to solve many of the above-stated problems by bringing CeFi (Centralised Finance) and DeFi together in a more symbiotic and efficient manner.
FluidFi itself – acting as the centralized FinTech frontend comparable to Revolut – will offer retail customers worldwide to open up a bank deposit account with them, which users can access via the web or mobile interfaces.
Fiat deposits with FluidFi are held in Client Safeguarded Accounts, insured by Lloyds against theft and fraud. At the same time, the FluidFi reserves are transparently verifiable on the Ethereum blockchain 24/7.
Users can mint Fluid’s reiteration of the “stablecoin” – called DigitalDollars (DUSD) (“Fully Insured Asset Tether USD”) – Backed 1:1 by their Fiat deposits in their bank account. DUSD will be a highly composable asset across DeFi. Users will be able to swap it on decentralized exchanges like Curve or Uniswap, lend it on Aave, or in many other ways. DUSD can again be redeemed for FIAT at any time, leading to a flexible bridge in and out of DeFi for “Degens” and new users alike.
Over time the team will introduce built-in investment offerings on top (like high-yield accounts) to specifically cater for users who are less experienced in the world of DeFi and are looking for easy-to-use products to put their funds to work effectively.
The minting and burning (when you redeem DUSD for FIAT) itself will get more decentralized over time. This is where a decentralized authority – the Defi Bridge DAO -, comes into play.
You Can Help Shape the Future
FluidFi has a bold vision for experienced crypto investors who embrace decentralization and retail users who look for a fair banking alternative. It is still the beginning, and the team relies on the input and feedback from its community. So help shape the future of finance and join the discussion on Discord, Telegram, or the FluidFi Forum.
Fluid Fi Links
- Follow our Twitter
- Check out our websites: fluidfi.ch & DUSD
- Join our Telegram community & the Announcement Channel
- Or our Discord community
- Inspect our GitLab
This post was written by guest author Archon.
The author is working as an advisor to FluidFi. This statement is intended to disclose any conflict of interest and should not be misconstrued as a recommendation to purchase any token or participate in any farms. This content is for informational purposes only, and you should not make decisions based solely on it. This is not investment advice. All market prices, data, and other information are not warranted as to completeness or accuracy, are based upon selected public market data, and reflect prevailing conditions and the author’s own views as of this date, all of which are accordingly subject to change without notice.