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DeFi is innovative, but crypto’s volatility is concerning


www.thecoinrepublic.com 19 July 2021 19:42, UTC
Reading time: ~3 m

  • DeFi industry can potentially change our traditional financial ecosystem
  • Investors in the DeFi sector are concerned due to the volatile prices of cryptocurrencies
  • Following the volatility, the investors are turning towards collateralized tokens
  • Collateralized digital tokens are known for less volatile as such tokens are pegged with real-world assets
  • While trading such assets, scaling gets more accessible, and again, the volatility of single crypto can be diversified too much stabler holdings

DeFi or the decentralized finance industry shows that the digital ecosystem can change our traditional financial world. The nascent crypto industry is emerging with consensus-based verification methods. Decentralized lendings and phenomena covered by blockchain are creating a new digital monetary system while making the traditional system obsolete. 

However, in the new ecosystem, volatility is a more significant concern of investors. Hence, such investors are taking a similar collateral-asset system that is the blending of public and private data on privacy-enabled Non-Fungible Tokens (NFTs).

DeFi token’s volatile nature is concerning

The DeFi sector has the potential to change the monetary system. Since the beginning of this year, the industry has shown tremendous growth proving its true potential. However, the investors are still concerned due to fraudulent activities and the volatility of digital assets. In contrast, the industry is entirely decentralized, and so financial scams are increasing in the sector.

On the other side, the investors are also concerned due to heavy price fluctuations of crypto assets. Notably, every average investor in the crypto market is concerned about these volatilities. In the open market, much of BTC and any crypto’s value is like a plummet based on changing market factors and the psychology of crypto holders.

Investors seek collateralized tokens

The volatility factor makes inventors nervous while playing on the digital assets market. These investors are trying to stay diversified for situations when the roads get rocky. Hence, such investors opt for another path towards decentralized finance assets that are collateralized by real-world assets.

The fundamentals behind these assets are that the crypto coins and tokens that individuals hold will value real-world assets. Such assets include real estate, royalties, or intellectual property.

Ethereum as the runner up cryptocurrency

Ethereum is the second-largest cryptocurrency that comes after Bitcoin. It is also noteworthy that the price of the asset fluctuates a lot too. A few years ago, the asset was trading for a few dozens of USD, and now it is worth more than thousands.

Prices of these assets are fluctuating up and down, but those who really understand the nature of the asset will stay divorced from the value of ETH. Indeed, if someone holds an ETH token that we tried to buy real estate, Ether’s price plunges, the housing market will stay stable. So ultimately, the portfolio gets a better chance of staying stable.

Are collateralized tokens beneficial?

It is common to see such real-world applications of collateralized assets. Investors can trade in something that is supported by consensus-based verification methods. The factor offers an alternative to the many unbanked individuals globally who are not served by traditional commercial banking systems.

Furthermore, while trading such assets, scaling gets more accessible, and again, the volatility of single crypto can be diversified to much stabler holdings.

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