Cryptocurrency is once again hitting front page news everywhere as the market hit dizzying new heights, with Bitcoin surging past a $21,000 valuation after a sudden 7% spike over the last week. As many other cryptocurrency valuations follow in Bitcoin’s wake, cryptofever has once again swept over the nation as latecomers climb over one another to get a piece of the action.
With every meteoric rise, however, comes a subsequent fall, and this sudden bull market is more than likely no different from any other. Where the digital currencies will dip to is anyone’s guess, but most smart investors know that there is a time and place to start hedging once the market reaches saturation.
For the layperson, investing in crypto begins and ends in purchasing and holding one of more coins and waiting for its value to go up. While this may work in the short term, there need to be alternatives, as cryptocurrency values are extremely volatile and are just as likely to jump off a cliff as they are to soar to the moon.
With this in mind, many a smart tech developer has seen the potential for alternative means of investments for those who have recently won their fortunes on the cryptocurrency markets. Just like investors on Wall St. have their portfolios diversified, a parallel financial system has begun emerging that allows users to shelter their currency from volatility while simultaneously generating income.
Decentralized Finance
This parallel financial system goes by ‘Decentralized Finance’, or DeFi for short, and works in much the same way as the ‘real world’ financial system. Items like precious metals, real estate, and even art have their value digitized onto the blockchain and partitioned into a set number of shares, referred to as ‘tokens’. These tokens are then distributed to buyers who use their cryptocurrency as a method of exchange, much like money is used in normal transactions.
This has a variety of effects – this allows for a stabilization of the cryptocurrency marketplace, as investors looking to cash in on their newfound wealth generated in the latest rally on the market can reinvest back into a digital marketplace rather than just sell off all their currency. It also opens up a number of different paths to wealth accruement that were previously out of reach for many young people who simply did not have the capital necessary to invest in things like real estate or art in the physical realm.
A Democratized World
Finance has long been the domain of extremely wealthy and well connected elites who effectively controlled the levers of power by determining who was worthy of participating through biased lending practices. Now, the process is being democratized by companies operating in the DeFi space such as RealT, a crypto-based real estate investment platform, and Aave, a sort of ‘investment bank’ for the crypto world.
One of the main issues facing DeFi is creating a borrowing system, where investors can borrow cryptocurrency to invest in projects, companies, or assets. Aave is one of the first companies to emerge attempting to tackle the issue, and they’ve recently begun working with RealT to make a more interconnected financial world in the space.
“Aave – the sector leading lending protocol – has partnered with RealT to bring interest-earning mortgages to DeFi.
…RealT allows investors to buy shares of managing properties. Each holder earns revenue directly into their wallet via stablecoins like DAI and USDC. This is very similar to how Real Estate Investment Trusts (REITs) work in traditional finance. The key difference between is that RealT aims to remove any central point of failure and to make the system fully decentralized.
…Aave plans to pass a proposal to add RealT money markets added to their leading lending protocol. Should RealT get added, it will become the fourth market after Aave’s own market, the Uniswap Money Market, and the forthcoming TokenSets market.
The integration looks to let users borrow stablecoins by collateralizing their RealT holdings. This market will be limited to whitelisted Ethereum addresses with KYC’ed users being able to deposit their tokens and use them as collateral to borrow stablecoins, opening up new use-cases for their assets.”
RealT’s promise of fractional real estate, which sections off pieces of an investment property in the form of stablecoins and pays rents directly to investors, and Aave’s mission to increase borrowing speaks brightly to a future for not only cryptocurrency, but the world in general. A financial system decoupled from traditional centers of power may mean that real, direct change to our current is possible, but that the change will be positive for the vast majority of people, rather than a few plutocrats in high offices.
