Decentralized Finance (DeFi), is a huge financial marketplace that exploded on the scene a few years ago. Many thought that 2020 was the year of the DeFi bubble – but continued development in the DeFi space has proven that idea wrong.
After a short period of explosive growth, the DeFi sector has created a full-spectrum financial ecosystem covering lending, insurance, derivatives trading, and prediction markets. While many of these platforms are new, they are popular and continue to grow.
There are a large number of competitive ecosystem builders in DeFi, and development has focused on capability. Data gathering has not been a focus up to this point – but this is changing as the market matures. The core of DeFi is decentralized operating networks.
There are many blockchains that make the current DeFi ecosystem operate. Ethereum is a global and decentralized blockchain that is the largest DeFi hub and was the first platform to feature smart contracts.
While all of the blockchains that allow DeFi to operate are open to public inspection – the tools to make this transparency a reality have been slow to evolve. DeFi has a strong need for data aggregation between protocols, both upfront to aggregate information visible to users, and back-end to aggregate liquidity for platforms.
Why is Defi Data Aggregation Important? In a decentralized and modular space like DeFi, proper aggregation tools are necessary. The nature of business is to satisfy demands and connect individual agents.
While DeFi's base protocols are constantly creating and satisfying demand, the aggregator's role is to expand liquidity. In expanding the quality and scale of users, the role of aggregators is essential. Without adequate liquidity, markets simply don't function correctly.
Theoretically, aggregators offer an unlimited supply of automated services and they are almost free (of course this is not absolute, and the cost of providing their services must be low enough). The more services an aggregator offers, the more users it will attract, as long as the user experience is in line with expectations.
The increase in the number of users will stimulate service providers who want to get active user traffic, thus creating a positive cycle via effective aggregation and network liquidity. The core of a DeFi Aggregator's existence is to provide options to enhance users' trading experience, reduce transaction rates, and maximize user profits.
The core benefit of an aggregator, as a tool geared towards DeFi participants rather than builders, is not how many lending protocols, DEXs, derivatives, etc. but rather how many possibilities it provides intuitively for users to monetize their assets.
Here we take a look at some of the startups that are working to create effective Defi data aggregation, and tools that use this data to make a positive impact.
New Ways to Analyze DeFi Data with Startup Technology
Analysis of DeFi Data
Defy Trends' original goal was to get more women into the blockchain field, but they've recently broadened their focus to include anyone curious about getting rid of what they call the "outdated, centralized financial system."
Many Defi protocols aren't used on a large scale and use complex mechanics that many people simply don't understand. As cryptocurrency's transition from an obscure online phenomenon to Main Street continues, it can be quite difficult to understand cryptocurrencies even for technology-savvy consumers.
With a mission to bridge this gap and educate people about cryptocurrencies, Defy Trends platform was founded by four women. Defy Trends is working to provide a comprehensive solution to understand how the crypto market operates, by developing crypto products, community, and educational content.
Defy Trends platform was founded by four women – Imge Su Cetin, Elena Garidis, Daniela Henao Moreno, and Masha Prusso.
Defy Trends uses string analysis and high-tech data science algorithms to provide data insights based on fundamentals and sentiment. In other words, Defy Trends' platform offers a unique combination of Artificial Intelligence-powered advanced market forecasting and digestible on-chain data analysis.
The platform seeks to analyze cryptocurrency sentiment on the internet and social media, combining real-time market data, qualitative data, and predictive AI to provide advanced insights. Its algorithms were already successful in predicting the crash in May of this year, which bodes well for its future performance.
Indexing of DeFi Data
Defi Data startup The Graph has raised $5 million in a token sale from Framework Ventures, Coinbase Ventures, Digital Currency Group, and others.
Its primary product is called Graph. It is an indexing protocol for organizing blockchain data that has evolved to support many of the leading DeFi protocols, including Synthetix, Uniswap, Aave, Balancer, and Aragon among others.
Serving as a key intermediary for software that makes blockchain data more digestible for DeFi applications, Graph allows them to easily pull historical data from the Ethereum blockchain. The $5 million in new capital will be used to build and launch The Graph's decentralized network, allowing dApps to effectively run their own nodes without relying on The Graph's infrastructure to handle queries.
As The Graph CEO Yaniv Tal told CoinDesk, it will follow the same path as Compound, the DeFi lending protocol responsible for the recent craze with yield farming thanks to their governance token – COMP.
Tal expects that users will be able to use more liquid assets such as DAI or ETH to pay for queries while receiving "cash back" in the form of The Graph native tokens. It is important to note that these fees can be allocated to node operators who process queries on the decentralized network, or used for GRAPH token redemptions and burning - both models - a popular model for many DeFi protocols today. For the moment, The Graph is limited to Ethereum-based DeFi products. As it becomes more popular, it may branch out into other blockchains as well.
Security of DeFi Data
It is important to note that the blockchain is now responsible for complex decentralized systems like DeFi, NFTs, and DAOs, and there has been a sharp increase in complex transactions that are difficult to control and investigate. Defi security incidents and Crypto wallets hacks are also on the rise, and will likely continue to grow as more people use cryptos.
Blockchain analytics company Chainalysis - the earliest mover in the blockchain big data tracking space – has been selected by the U.S. government as its largest e-analytics partner to stabilize the financial order in the cryptosphere for the fight against criminal money laundering. As the leading and largest provider of blockchain data services, Chainalysis is positioned as a leader in blockchain tracking and oversight.
Chainalysis is also a leading provider of market data for investors, or anyone who is interested in the blockchain space.
The company has created a global DeFi adoption index, and according to a new report on the platform, crypto trading globally has grown by 700% over the past year. Although the current DeFi market went through a hot period in 2020, it is still immature and has loads of room to grow. There is clearly potential value just waiting to be tapped, and platforms that exist today waiting to be noticed and adopted on a large scale. In the future, Chainalysis will act as an ever-larger source of market data and will help governments contend with the risks that decentralized systems create.
Blockchain Data is Valuable
In the early days of blockchain, the only value that people saw was in the tokens themselves. Now investors and governments are waking up to the fact that blockchain data is extremely important, and a number of companies are creating systems to help analyze the mountain of data that blockchains create on a daily basis.
Disclaimer: The opinions in this article belong to the author alone and should not be considered investment advice.
Lead Image Courtesy of Lukas Blazek on unsplash.com