The transition from the ICO model to DeFi has shown that raising money from users is no longer fashionable, and tokens no longer embody a project’s success. This was stated by speakers during a panel discussion at the ForkLog Live online conference ‘DeFi: A Practical Guide’.
According to Konstantin Lomashuk, founder of p2p.org, during the ICO boom in 2017 investors did not really understand the quality of projects. Many projects raised large sums at too early a stage, and developers simply did not have time to deliver a working product within the agreed timelines.
“This happened not because they were trying to defraud investors, but because they spent all the money on implementing the idea, and the tech stack wasn’t ready,” Lomashuk said.
Another problem was that the raised funds were most often stored in Ethereum, and the founders lost a large part due to price declines.
Lomashuk noted that, in most cases, the blame for the lost money lies not with the organizers of ICO campaigns, but with inexperienced investors:
“If you look at the situation from a hamster’s perspective, you can’t miss the founders’ self-sacrifice: some took on security risks, others had to sell apartments to feed the team. In the end, having lost money and gained knowledge, the market formed. It featured both scammers and white-hat hackers who saved millions of dollars,” he added.
With the advent of DeFi, projects, instead of raising money from users, began issuing assets in exchange for services, for example, for providing liquidity, according to Anton Bukov, CTO and co-founder of 1inch.exchange.
“Previously, tokens were a measure of a project’s success; now they are issued as compensation for valuable work, and a user can’t lose much from it, even amid sharp price swings,” the expert explained.
Even though the APR (annual percentage rate) in the DeFi market is distributed unevenly, the ecosystem tries to balance risk and reward. According to Bukov, despite volatility a user can hedge risks on another DeFi platform.
Another trend in 2018 was the mass creation of layer-1 solutions, where a separate blockchain was developed for each task. By 2020, layer-1 solutions focused on increasing network throughput.
“Today, 99% of DeFi activity takes place on one network. Further development consists of expanding the system and capabilities for sending tokens, operating DEXs, lending. In fact, Ethereum has real throughput problems, but this is explained by the number of projects on it,” says the CTO of 1inch.exchange.
Growth in Ethereum users will lead to higher gas costs, but important transactions will still remain in the network, Lomashuk believes.
“Gas price is a throttle for 300,000 people the network can service,” adds Anton Bukov. “The price will rise as long as there are people willing to pay for it”.
Experts did not provide concrete forecasts regarding potential regulatory oversight of DeFi.
“I find it hard to imagine regulating this ecosystem. Banning it won’t work, since a more primitive market for buying and selling will decide everything,” said Dmitry Krystal, the CBDO of Monolithos DAO.
Konstantin Lomashuk suggested that Uniswap, a leading decentralised exchange, will introduce KYC.
“The token-distribution mechanism that brings liquidity to your product is very clever. How you implement it will determine how long it will endure,” he added.
Anton Bukov believes that the strategies used in the crypto market are an ideal model for the operation of fiat money:
“A system with different currencies in different countries under central banks looks very primitive. I think soon cryptocurrency will enter the traditional market. Even institutional investors are taking this area seriously,” he concluded.
Earlier at the conference Anton Bukov said that the main advantage of decentralized crypto exchanges built on layer-one protocols is their interoperability with one another.
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