Over the past few years, DeFi has grown from a small niche market to a thriving ecosystem shaking up traditional banking. This article will discuss some DeFi trends to watch out for in 2023 and beyond.

Decentralized Finance (DeFi) is making a lot of businesses better at what they do. It is a game-changer for the financial world and a profitable business plan worth billions of dollars.

The trading view report shows that the market cap of decentralized finance is around $43.17 billion. Due to the current trends in DeFi, this hype keeps getting bigger and bigger.

Because of this, some fantastic business ideas were brought into the field. People who want to put money into DeFi are now very interested in them.

Technological growth has taken over the world, and through 2022, things have changed that would have taken years to change.

The Pandemic may have affected our everyday lives, but it is also one of the main reasons why some of the best new technologies and ideas have emerged in the last three years.

Just as the Pandemic has led to technological progress, so has trading in digital currencies.

Decentralized finance (DeFi) will be big in 2023, especially in the financial blockchain. Digital currencies like Bitcoin, Ripple’s XRP, Ethereum, and Stablecoin can be used by people today.

DeFi applications and sites have left the traditional financial system behind and made a new way for digital currencies to trade.

While the rest of the world was worried about an outbreak, the blockchain got a DeFi bug. Cryptocurrency fans have been upset with FOMO for mining liquidity, stable borrowing, and protocol funding.

Shortly, DeFi trends were the main topic of conversation for most of the year, and non-traditional financial institutions made much progress during COVID-19.

The total amount locked out (TVL) was over $1 billion in February 2021. This is how over $ 13 billion worth of assets were signed under DeFi contracts during the fiscal year.

Even though DeFi is growing quickly, it is still a very young business with much room for new ideas.

What is DeFi?

Decentralized finance (DeFi) is a fintech solution that uses a distributed ledger to make it possible to do financial deals without banks or other centralized financial institutions.

All transactions are written down on a public and unchangeable log, so institutions don’t have to charge a fee for each one.

With a phone and an internet link, you can borrow, save, lend, or trade cryptocurrencies without knowing your customer (KYC).

This makes DeFi easier to use, more integrated, and transparent and has well-known benefits.

The growth of DeFi protocols has also made it easy for several new crypto companies to get started.

Demand has increased a lot, and the business is expected to grow from $11.78 billion in 2021 to $231.19 billion in 2030, an increase of nearly 20 times.

DeFi Trends to Watch Out for in 2023 and Beyond

We think 2023 will be just as exciting, if not more so, than 2022 because so many exciting things happened in 2022 and before. Here are some new DeFi trends to keep an eye on.

Real-World Assets on the Blockchain
The next level of Insurance
Cross-Chain Integration
Liquid staked derivatives (LSDs)
Continued growth of Cosmos
Advances in DEX and AMM
Monetizing blockchain gaming

Real-World Assets on the Blockchain

By moving real-world assets (RWA) to the blockchain, they have helped to open up large amounts of liquidity and usefulness that would have been hard or impossible to get in the real world.

Even though blockchains can make things more open and liquid, tokenizing physical assets hasn’t worked out very well.

One reason could be that there is a complex but “good enough” legacy market for most real-world assets that has been around for a long time.

Carbon credits are a relatively new type of asset, and they might be an exception to this rule. No carbon system has existed for so long that it can’t be changed.

Building web3 infrastructure to put carbon credits on chain could be the first real success story of tokenizing real-world assets.

Also, big players in the DeFi lending market, like MakerDAO, have made buying in US Treasury and corporate bonds legal and have teamed up with traditional banks to offer loans with RWAs as security.

Currently, 57% of MakerDAO’s income comes from US Treasury bonds worth more than $500 million.

One of the most valuable ways for DeFi to be used is in partnerships with banks and real businesses. Goldfinch is another example.

It is a decentralized global credit protocol that lets users loan their USDC to real businesses. Goldfinch’s revenue has continued to grow even during the bear market, with about $100 million in loans given out.

This gives actual returns outside crypto activities, but there are risks because the loans are not well-secured, and bad debts can happen.

In 2023, RWAs will likely increase in popularity since many in the industry regard them as a fantastic opportunity to integrate traditional institutions with DeFi liquidity.

In addition, Vitalik Buterin expresses his enthusiasm about RWAs on his blog, writing, “the formula behind stablecoins can be applied to other real-world assets,” presumably referring to DAO-governed stablecoins backed by physical assets.

The Next Level of Insurance

DeFi insurance is like traditional insurance in that it protects your investment in the DeFi businesses against losses. This insurance covers smart contract fails, exchange hacks, and other custody risks. People like them because they make insurance claims faster, save money, and have precise insurance rates.

This makes people more aware of laws and benefits that are good for them. Since autonomous finance is still growing, it will take a while to meet the standards set by regulators.

Instead of jumping to conclusions based on compliance with rules, consider its benefits and how it is being updated.

Cross-Chain Integration

One of the most exciting things on the horizon is that DeFi systems on different blockchains can work together better.

As projects like Polkadot, Cosmos, and Avalanche continue to gain traction, DeFi protocols are changing to work smoothly across various chains.

This will not only make the market more open, but it will also help solve the problems that come with a single blockchain.

Liquid Staked Derivatives (LSDs)

Speaking of liquidity, one of the next big things that will happen after the Ethereum Merge is the Shanghai upgrade for Ethereum in 2023. This will allow staked ETH to be turned back into usable ETH.

Before the Shanghai upgrade, staked ETH couldn’t be turned into cash. So, starting with ETH, Lido made liquid staking derivatives (LSDs) famous.

Users could invest in ETH with Lido to earn ETH staking rewards and receive stETH, a liquid token representing their staked ETH tokens.

stETH can then be used in DeFi for selling, lending, borrowing, and providing liquidity instead of the ETH just sitting there while it is being staked.

This trend of derivatives with liquid staking spread to Cosmos, and several liquid staking providers started making liquid-staked versions of famous Cosmos proof-of-stake (PoS) assets like ATOM, OSMO, and others.

Even though staked ETH can’t be removed, the amount of staked ETH has been steadily growing, especially on Lido, as the chart below shows.

Continued Growth of Cosmos

Talking about LSDs, the rise in popularity of LSDs is evident in the Cosmos ecosystem, which is made up of only proof-of-stake networks with governance assets that are claimed at random to protect the network.

In 2022, there were a lot of new liquid staking providers. This made getting the money locked up in these claimed assets easier, which led to more DeFi activities.

But even more than that, as DeFi keeps looking for ways to grow, Cosmos app-chain solutions have shown to be an excellent way to scale, attracting dApps.

Even though the market is down, Cosmos has kept many active users on its decentralized apps (dApps). DEXs like Osmosis, for example, have more than 100,000 active users every month.

Central Limit Order Book (CLOB) trades are the best chance for this to happen.

DYdX started this trend, and we expect spot and derivative markets to be built as app chains so that they can save money on fees and have faster transactions.

The Cosmos SDK makes app chains so appealing, which lets you build a technology stack that can be changed to fit the needs of the DeFi protocol.

One of the significant changes coming to Cosmos Hub is Interchain Security (ICS), a form of shared security in which new chains will use current ATOM validators to secure the chain instead of setting up their own validator set.

In return, ATOM validators will get staking rewards from the new chain. This will increase the value of ATOM stakes while letting new applications focus on providing a dedicated execution environment and better user experiences.

Interchain Accounts (IA), released in 2023, make it easier for Cosmos dApps to talk to each other and create a more balanced ecosystem of dApps.

They are also expected to help more app chains start and work together better, which could make Cosmos even bigger. All in all, it looks like Cosmos will have an exciting year.

Advances in DEX and AMM

Decentralized Exchanges (DEXs) and Automated Market Makers (AMMs) have already changed how people trade by giving them access to a wide range of assets without asking for permission.

In the coming years, DEXs and AMMs will likely get even better-looking and more functional.

With better user interfaces, less slippage, and better handling of liquidity, decentralized trading will be even more attractive and able to compete with centralized trading.

Monetizing Blockchain Gaming

Blockchain-based games have increased, and NFTs and blockchain assets are crucial to the experience. DeFi will be a big part of how blockchain games make money in the coming years.

More and more games will have “play-to-earn” methods where players can earn cryptocurrency or NFTs by playing.

DeFi protocols will provide the infrastructure for decentralized in-game economies, creating exciting possibilities for gamers and investors.

Conclusion

DeFi is a vibrant and ever-changing universe, and the years 2023 and 2024 look fascinating.

There will always be obstacles and unknowns in the financial sector. Still, the constant innovation in the DeFi arena guarantees that it will continue significantly shaping the industry.

DeFi is here to stay, and its potential is limitless!

7 DeFi Trends to Watch Out for in 2023 and Beyond

What is DeFi?