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Search interest in " Nexus Mutual" is up 175% over 5 years. The purchasers of insurance pay a premium to this pool and receive a payout if the covered risk comes to pass. Nexus Mutual, for instance, is a DeFi insurance platform that allows ETH owners to pool their funds in order to provide insurance for other smart contracts. But in a truly decentralized fashion, DeFi insurance basically matches DeFi users looking to earn income with those looking to reduce risk. These insurance contracts are similar to traditional insurance in many ways. The inherent volatility of crypto assets makes reliable fixed income nearly impossible to attain unless some kind of tranche lending process is created.ĭirectly related to the growth of DeFi and DeFi derivative products is the rise of DeFi Insurance. This is more important than ever to the crypto world. In the crypto world, protocols like BarnBridge and Saffron Finance are pioneering tranche lending.īarnBridge's main use case is tranche lending.
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Lower risk investors get the aggregated interest first, while investors seeking a higher return are paid with riskier income that may or may not actually be paid. And the owners of the tranche lending product get to choose their risk exposure. In the financial world, tranche lending products basically allow lenders to fund more volatile and risky loans by taking a pool of loans and segregating the proceeds to groups of investors based on risk appetite. If this scenario plays out, the BTC and ETH option markets alone will be worth about 10x more than they are now.Īnother form of financial innovation that is making its way from the world of traditional finance to the crypto ecosystem is tranche lending. Hegic estimates that, as of December 2020, the total ETH average daily option volume was at roughly $50-$120 million.Īnd BTC’s total option volume was $300-$800 million a day.īy 2023, Hegic expects the total combined daily trading volume of both ETH and BTC options to reach roughly $9.2 billion. Hegic is designed for options trading using ETH.īecause of Hegic, crypto holders and minors now have an easier way to hedge their risks and short certain assets. Searches for "Hegic" have seen increased search frequency over the last 5 years.īasically, the Hegic platform allows users to enter into on-chain option contracts for ETH and WBTC.
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Hegic is the leading marketplace for crypto-based option trading. Traditional financial products like option contracts are also gaining momentum in the crypto space. And by the end of 2020, over 5.5 million WETH had been created. In September of 2020, it was reported that over 5% of ETH had been converted into WETH. The ERC-20 token standard (the standard now used in most smart contract transactions) was created after the creation of ETH.īecause of this, many ETH holders want to convert their ETH into an ERC-20 token. And some predictions indicate that that number could grow to 5% in early 2022, enabling all kinds of cross-platform transactions. In 2020, the supply of WBTC jumped from representing 600 BTC to 124,000 BTC.Īs of late 2020, WBTC made up roughly 1% of the total bitcoin supply. WBTC is basically a way to create an Ethereum-based derivative of bitcoin.īitcoin owners can then use the derivative version of the BTC they own to do things like lend, stake, or yield farm on the Ethereum blockchain. Search interest in "Wrapped Bitcoin" has grown by 3,600% over the last 5 years.
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Wrapped Bitcoin (WBTC) is another way the crypto market has managed to use derivatives to increase efficiency. Uniswap currently sit in second place on the DeFi derivatives market table. Search interest in "Uniswap" has grown by 1,200% over the last 5 years. Search interest in "MakerDAO" has grown by 2,500% over the last five years. It makes up over 20% of the total DeFi derivatives market. Maker is the largest player in this market. The TVL of the DeFi derivatives market was around $25 billion in late 2020. The TVL of the DeFi derivatives market is currently $39.23 billion, or roughly 20% of the total DeFi market.īut its recent growth has been very impressive. The DeFi derivatives market, on the other hand, is still in its infancy. In the traditional financial markets, the total value of financial derivatives is estimated by some to be 10x larger than global GDP.Įssentially, derivatives dwarf the value of regular financial markets. Traditional Financial Products Enter the DeFi Landscape So if you want to learn about the most important trends in the DeFi space, read on. In fact, Total Value Locked (TVL) – a measure of DeFi transaction value – grew by 14x in 2020.Īnd in 2021, TVL more than quadrupled to a total value of $112.07 billion at its peak. In 2020, the growth of DeFi took the financial world by storm.