How does DEFI impact the adoption of Bitcoin and Ethereum?

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DEFI

WHAT IS DEFI

Decentralized Finance, or DeFi is a financial instrument or service on blockchains, such as Ethereum. Users can perform banking functions such as lending and borrowing, earning interest and insurance, trading assets, etc. It is quicker than the conventional version and doesn’t require intermediaries.

It builds on the premise of digital currency, creating a digital economy that is more open, accessible, and free. To get started, you only need a computer with an internet connection. DeFi helps you remain anonymous because it doesn’t ask for personal information. You can transfer digital assets without having to ask for permission or pay hefty fees.

DEFI FOR BITCOIN AND ETHEUM

A Chainanalysis report states that Ethereum (ETH) is the most widely used crypto. As of July 2023, it was held by 79 million wallets. According to the report, Bitcoin was only held by slightly more than 50 millions wallets. The distribution numbers of any crypto-asset show the investors’ expectations for a price increase in the future or their sentiment about its utility. DeFi’s explosive growth in recent years played a crucial role in accelerating Ethereum adoption. Most DeFi applications were built on it.

Decentralization of ownership is also a key factor for their adoption. According to the same Chainanalysis Report, Bitcoin is the most distributed asset. 0.009% all wallets store 50% of its supply. According to the report, Ethereum is top-heavy with 131 entities or 0.0002% all wallets owning 50% tokens. Bitcoin trading has slowed down since the crypto-winter of 2022.

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Users have also adopted a hold mentality, as many Bitcoin wallets are still dormant. The 2021 bull run and the DeFi Summer of 2020, on the other hand have given a major boost to Ethereum adoption. ETH tokens have been extensively used in thousands of protocols that were built on the platform.

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Smart contracts helped to develop dApps and increase ETH adoption. Bitcoin, on the other hand, was primarily used as a token for transactions. The majority of Ethereum’s supply is held in DeFi protocols. Bitcoin, on the other hand, has a negligible percentage in DeFi. Ethereum’s supply for centralized exchanges is always above 30%. Bitcoin’s shares has never exceeded 20%. According to the Chainanalysis Report, Ethereum had the highest liquidity, with 4.8 millions wallets still active in July 2023. Bitcoin came in second with 1.9 million wallets trading it.

DEFI AND BITCOIN Adoption

Previously, it was not possible to create Smart Contracts on the Bitcoin Blockchain. However, the Taproot Upgrade now allows DeFi. In the past, Bitcoin faced scaling issues when creating decentralized applications. Recently, many Bitcoin scaling solutions, including Stack, Rootstock and Liquid Network, have appeared on the market.

DeFi is a newcomer to the Bitcoin network, but it still has a lot of work ahead. The NFTs are still in the early stages of development on the Bitcoin network, but experts believe that since they helped lay the foundation for crypto that developers will also join the Bitcoin community to create new, decentralized financial instruments not found on any other network, thereby helping their adoption.

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Disclaimer: Crypto-products and NFTs can be risky and unregulated. Losses resulting from these transactions may not be regulated. Investors should do their own research and seek independent advice, if needed, before initiating transactions with crypto products or NFTs. The author is solely responsible for the views, opinions, and thoughts expressed in this article.

ZebPay, the author’s employers, or any other group or individual are not liable. ZebPay will not be held responsible for any omissions or acts, or losses suffered by investors. ZebPay did not receive any compensation, either in kind or cash, for the above article. The article is being provided “as-is”, without guaranteeing its accuracy, completeness, timeliness, or the results that may be obtained by using this information.

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