DeFi is behind crypto’s momentous move into the mainstream
Since the birth of Bitcoin in the halcyon days of 2009, crypto enthusiasts have been heralding a new era of global finance in which we, the people, could have a working currency all of our own. Free of interference from governments and central banks and based on incorruptible, digital ledger technology, cryptocurrency was set to make a brighter, fairer, more resilient world.
More than a decade later we have seen incredible progress in crypto. Bitcoin (BTC), once roundly mocked by the financial establishment, is now trading at more than $62,000 (as of 13 April 2020) as asset managers and the world’s biggest companies have piled in. Meanwhile, the rest of the crypto economy has been fast catching up, with BTC’s dominance of the $2 trillion cryptocurrency market now hovering just above 50%.
What has been lacking in cryptocurrency to date, however, is progress on moving it forward as a viable form of payment in the real world: the ultimate goal of the Bitcoin whitepaper. That is, until now.
In recent weeks and months we have seen big announcements from some of mainstream finance’s biggest retailers and payment providers, announcing they will be processing payments and purchases of cryptocurrencies: announcements that have sparked a new global wave of interest in crypto.
Crypto’s mainstream tipping point
These include PayPal’s move to allow users to buy and hold cryptocurrencies on its platform, with its long-term plan to allow them to pay for goods using crypto with PayPal’s 28 million global merchants.
In addition, Visa has increasingly been making inroads into crypto. The global payments behemoth has been teaming up with crypto card providers to give users access to real-world payments with a Visa card, while most recently it announced that it plans to use USDC to settle payments on the Ethereum blockchain.
For many, this marks the tipping point — or at least the first definitive signs of a tipping point — that will see cryptocurrency move into the mainstream. If PayPal is on board that’s one thing, and sure, you can buy a Tesla with Bitcoin now, and even fast food at Burger King in Venezuela, or a university course in Romania.
However, when Visa hops on the crypto-bus, we’re arguably witnessing a real breakthrough. For those familiar with the rigmarole of on-ramping and off-ramping between crypto and fiat, this development is truly mouth-watering.
DeFi in the driving seat
A number of factors have driven cryptocurrency to this point. Widespread institutional adoption of the industry’s flagship coin by institutional investors is one factor, most definitely. Vocal and financial support from well-known business and entertainment figures, another.
Some even posit the Covid-19 pandemic and the subsequent spike in crypto interest and purchases as a leading driver. Others point to some shrewdness on the part of Visa potentially planning ahead for the integration of payments in central bank digital currencies.
At least over the past year, however, the real engine-room of crypto adoption has been the explosion of decentralized finance (DeFi). Since the birth of the first stablecoin in 2017 (DAI), innovation in DeFi has been laying the ground for an entirely new, fully digital financial system run on the blockchain: the realization of the Bitcoin dream.
Since 2020 especially, DeFi has spawned a vast network of platforms and protocols that allow users to swap, trade, deposit, borrow and lend cryptocurrency for income and growth opportunities not seen in traditional finance for decades.
Indeed, it is DeFi we can largely thank for the genesis USDC — Visa’s coin of choice for future on-blockchain settlements. As most users will know, the entire DeFi ecosystem relies on the use of dollar-pegged stablecoins like USDC and USDT that are proving a gateway for widespread cryptocurrency adoption.
The ability to earn yields in excess of 10%, and often up to 20% and beyond, on a dollar-pegged asset is an enormously attractive prospect for millions in the developed world, and with Visa now planning to settle payment using a stablecoin, the trajectory seems clear.
Blockchain to the future
It is, however, arguably Visa’s decision to accept payments on Ethereum that has proved the most exciting aspect of this news for many crypto-enthusiasts. Indeed, Ether (ETH) — the native coin of Ethereum — has climbed 29% from $1,668 to $2,162 a coin since Visa made its announcement on 29 March, with many now tipping ETH to soon strip BTC of its “digital gold” title.
For some, ETH’s position as the native payment system of “the world’s computer”, Ethereum, gives it value beyond the pure supply and demand dynamics that underpin Bitcoin’s price.
Ether is, moreover, already a fully functioning currency: any transactions that happen on Ethereum — not least within the $51 billion DeFi market — are and always have been paid in ETH. The Ethereum network, some might argue, is already a fully functioning, independent economy that will blossom into a truly dominant force once its upgrade, Ethereum 2.0, is rolled out.
As shrewd business people, Visa, PayPal et. al. may simply be reading the writing on the wall. It is early days, but it seems crypto is finally on its way to becoming a currency.