Three booms of digital finance - DeFi, IEO and ICO
26.04.2021 | asorokin
Cryptocurrencies were first widely discussed in 2017. Since then, there have been three development booms. During each of them, prices for new products showed thousands and tens of thousands of percent growth in the short term. However, as quickly as the turnover increased, so did the decline, with only a handful of projects holding the high level. ICOs were particularly popular in 2017, IEOs spread in 2019, and now DeFi distributed finance systems are gaining momentum.
ICO is an initial coin offering. It is the one with which most experts associate the growth of interest in digital assets and the emergence of a financial bubble in the cryptocurrency market. At that time, society was not yet fully ready for the acceptance of cryptocurrencies and regarded them only as a financial instrument, ignoring the technical component of the issue.
We should not exclude the different goals of developers, project managers, and those who invested money in these projects. Companies put on the market either a raw product, or began to accept money without even a viable prototype. It is also worth mentioning about investors: most of them did not have the necessary level of training and amount of knowledge to recognize really worthwhile products.
Therefore, the boom time numbers for investors are not very comforting: the total amount of investments in new tokens was about $64 billion, while the average return became negative, with investors losing about 87% on average.
Initial Exchange Offerings were a natural outgrowth of initial coin offerings. Under IEO, each new coin began to undergo careful selection by experts from the exchange where the offering was planned, which significantly reduced the risk of fraud and made investments more transparent. Now it was no longer the developers of the projects who were looking for ways to raise money, but the exchanges themselves were choosing really worthwhile projects capable of offering something new to the cryptocurrency industry.
Under IEO, the token was placed on a special platform where everyone could buy new coins on a first-come, first-served basis. However, due to the selection and reduced risks, many did not have time to purchase even parts of the token, everything was sorted out by the big players. Then a number of exchanges introduced a lottery system, in which the circle of initial investors was selected at random from the applications left.
A boom in initial exchange offerings took place in the first half of 2019. In May alone, the new tokens managed to raise more than one billion dollars. However, already in the first month of the summer, this figure dropped tenfold. As with ICOs, most IEOs ended up being unprofitable.
Last summer saw a new wave - DeFi projects were gaining particular popularity. Decentralized finance is a whole layer of new offerings in the cryptocurrency market. At this time, many services of different directions appeared:
event prediction, and a number of other areas.
Many DeFi projects offer their own cryptocurrency for internal use, in most cases issued on the Ethereum blockchain.
To date, DeFi has more than $100 billion in blockchain and it is too early to talk about a decline in interest. The number of investments has increased tenfold in a year and continues to grow at a rapid pace.
Unlike ICOs and, partly, IEOs, in DeFi the number of investors who invest more consciously, carefully selecting the project themselves, accounts for a significant portion of all investors. At the same time, all the projects whose growth was unreasonably fast have dropped out fairly quickly and left the industry, which is the normal course of things in the cryptocurrency industry. However, a number of projects have not only not lost in value, but also show stable development.
DAO, or decentralized autonomous organizations, are bright representatives of successful DeFi projects. They play a leading role in the development of decentralized finance, and their importance will only increase over time as more and more companies realize that decentralization is the future of the economy, and that innovation can change the established way of doing things, regardless of the wishes of established elites. There are already a number of successful projects that have changed some of the order of things.
Maker is currently one of the best known decentralized autonomous organizations. Management and regulation within the system comes from MKR control tokens. They are the ones that lead in terms of capitalization among DAO token managers. At the end of April 2021, that figure exceeded $8 billion.
Not only private investors have shown interest in this token, but also companies such as Andreessen Horowitz. Indirectly, this can serve as proof of the viability of the very idea of DeFi and decentralized management in the financial sector.
The creators of Aragon aimed not just to create an ecosystem, but to allow other developers to run their own DAO. Like other DeFi protocols, Aragon allows people from all over the world, where the Internet is available, to come together. At the moment there are already more than one and a half thousand decentralized autonomous organizations of varying degrees of success based on this platform. Within the ecosystem there is also its own cryptocurrency ANT. Token holders can not only vote for the choice of the direction of the network development, but also pay for the creation of their own projects. At the time of writing, the token was among the top two hundred in terms of capitalization, which leaves almost $300 billion.
The idea of control in Moloch is different from the previous two. Here tokens cannot be voted on for decisions made, they can be exchanged for the issuance of new shares within the Moloch ecosystem or for an equity stake in the DAO. Thus, the decentralized organization is an equity-based DAO, not a management-based one.
Decentralized finance will definitely take its rightful place in the new, rapidly changing global economy. They may be second in popularity to central bank digital currencies, but state-regulated assets are unlikely to provide ordinary users with the level of freedom a new generation needs. It is more likely that authorities in most countries will decide to regulate DeFi and other cryptocurrencies, giving full freedom of use and helping the economy and international exchange.