A Look at Some of the Latest Developments in Decentralized Finance in 2022

Decentralized finance (DeFi) is when applications are deployed via blockchain networks to make financial assets available to the avergae person without the need for middlemen such as financial brokers. In contrast to establishing an account with a bank or brokerage business, you do not need to submit personal details to get started with decentralized finance. Instead, DeFi is often used to refer to a system that uses stringent software to link buyers, sellers, lenders, and borrowers with peers or an intermediary. This contrasts with a company facilitating transactions or a fintech-focused app development firm.

The development of decentralized financial systems is still in its early stages. According to DefiLlama, the total TVL of the DeFi industry is currently over $55 billion. Although the overall amount of DeFi may seem large initially, it is vital to remember that the bulk of its coins lacks the liquidity or volume to be traded on cryptocurrency exchanges. Furthermore, there are infrastructural issues, such as hackers and other weaknesses in DeFi systems. Scams abound in the fast-expanding world of distributed ledger technologies. DeFi's transaction span is without bounds for this kind of regulation. 

Smart Contracts

The DeFi legislation emphasizes digitally signed smart contracts. Smart contracts are self-executing programs that activate once predetermined conditions have been met, and these contracts power many applications in the DeFi space. For example, decentralized exchanges (DEXs) use a combination of smart contracts and automated market makers (AMMs) to enable users to swap tokens almost instantly. Instead of relying on an order book with orders from other traders, smart contracts enable swapping tokens from a user's wallet and the liquidity pools that store the tokens in the DEX.

Minting Mechanism

Another example is the minting mechanism seen with NFTs. Once the smart contract receives a certain amount of tokens, it deposits the NFT into the sender's wallet. For example, if it costs 0.5 ETH to mint an NFT and there's a maximum minting limit of 3, the smart contract will deposit 3 NFTs to the wallet that sends 1.5 ETH, 2 NFTs if 1 ETH is sent and 1 NFT is 0.5 ETH sent from that wallet. Smart contracts remove the need for a middleman to manage the interactions between users and protocols within the blockchain space.

Aura Finance Reaches 500m TVL 

Aura Finance is a protocol built on top of Balancer that gives BAL stakeholders and Balancer liquidity providers the option to quickly increase their return potential and governance authority. After a few months of operation, the platform announced an astounding record of more than 500 million TVL. Even though the protocol wasn't released until June 2022, this now places Aura Finance in the same company as some of the most well-known firms in the cryptocurrency finance industry.

According to the information provided by DeFi Llama, Aura Finance has made its way into the list of the top 25 DeFi protocols in terms of the total amount locked. Aura Finance presently ranks higher than many other protocols in terms of the total value of assets locked, thanks to its recent achievement of around $528.29 million. Other protocols include SushiSwap, Yearn, Synthetix, and dYdX. Currently, the price of one AURA token, which is Aura Finance's native cryptocurrency, is hovering around $2.18.

Over time, the Aura project intends to expand its footprint and sphere of impact beyond Balancer and into other DeFi ecosystems. Aura Finance asserts that they are dedicated to increasing Balancer users' profit potential and governance power and beyond.

Stablecoins are a popular DeFi staple

The industry of stablecoins is another area where decentralized finance is rapidly expanding. Stablecoins provide a safer and less volatile alternative for investors who want to earn money via DeFi. Tether (USDT is currently the most popular stablecoin, followed by USD Coin (USDC). These cryptocurrencies are pegged to the US dollar, with their values staying within the $1 range with very slight fluctuations. This is in contrast to regular cryptocurrencies whose values can change drastically over time. The relative stability of stablecoins makes them an attractive investment vehicle, especially during bear markets, with investors able to stake these coins for a fixed percentage return.

Conclusion

Because of advancements in blockchain security, we will continue to see new developments, protocols, and advancements over the years. Furthermore, DeFi increases its market position by expanding the size of its blockchain community. Considering the continued growth of DeFi, the next few years will prove more significant for the emerging sector.