Cryptocurrency wallets can take the form of either physical hardware wallets or an online protocol, software, or a service that stores keys that give you permission to make crypto transactions. Wallets can also function to let you encrypt to or sign information as in the case of a smart contract.
Crypto wallets are centralized or custodial wallets which means that the private keys are held by a third-party. Decentralized wallets or DeFi wallets operate differently in that the currency is stored with the user but transactions are conducted on the blockchain. But more about that later…
The history of wallets starts with Bitcoin — as do all modern-day crypto developments. Satoshi Nakamoto’s BitCoin was the springboard that launched Ethereum upon which DeFi has been built almost exclusively. The limitations of the Bitcoin programming language, Script, led to developers exploring other avenues to create more extensive applications using blockchain.
With that exploration, the evolution of the general and typical crypto wallet occurred. After all, sending crypto easily is one thing, but financial systems consist of more than that and that is where Decentralized Financial services come in. They extend to lending, borrowing, funding, trading, and derivatives trading.
“Because it [Bitcoin] is a full node, the client must download the entire (currently 6 gigabytes) blockchain to operate, which can take up to a few days the first time you start the client and several minutes to an hour every time you start the client afterward if you do not keep it running constantly.”— Vitalik Buterin’s review on the Bitcoin-Qt wallet in 2012
One of the oldest projects on Ethereum, Maker, is widely considered a pioneer in the DeFi space. Launched in 2017 during the ICO “rush”, Maker spurred the development of decentralized finance by being one of the first to adopt smart contracts to pool funds from multiple users rather than directly with users. Broadening out the functionality of crypto meant that crypto wallets had to change to meet these new possibilities.
With DeFi the relationship between the user and contract means that there are not as many interactions with the blockchain. This setup was leveraged by Compound, which, in the DeFi summer of 2020, started rewarding their users for lending to and borrowing from the pooled funds. And so, yield farming was born and DeFi began to blossom and access to these new ways to earn using crypto required wallets that were more advanced and had this access and integration.
DEFI’S OVERALL SUCCESS IS UNDERPINNED BY AND DEPENDENT UPON DEFI WALLETS.
Wallet development has come a long way to enable integration with more DApps and Decentralised protocols. Early DeFi wallets were clunky, slow, and almost too simple.
Typical characteristics of DeFi wallets are:
- Non-custodial — the user has full custody of the wallet and has complete control over the private keys for the wallet.
- Built in DeFi service offerings
DeFi wallets are a revolutionary concept considering traditional finance depends entirely on third parties like banks and brokers. Without your keys, access to your DeFi wallet is lost as there is no back-up. With a centralized wallet the third party can assist should you lose your keys but that can be a security risk. Your funds’ security is wholly dependent on you, so DeFi wallets are arguably the safest options on the market.
DeFi users are not required to verify their identity via KYC and can maintain a level of anonymity and control over their identity. In the age of banking security hacks and identity theft, this is very appealing, although depending on your country of residence and their regulatory framework, it may be necessary to verify your account details depending on the services you use. This is usually to prevent tax fraud, money laundering, and terrorist activities.
The growth and expansion of DeFi through the development and availability of more DApps and protocols makes newer DeFi wallets a lot more diverse than their predecessors.
DeFi wallets have various options available. For example, one of the best DeFi platforms is the Eidoo wallet. The wallet is built into an entire ecosystem of DeFi offerings. Services that give the user access to a Decentralized Exchange (DEX), yield farming strategies with Steroids and liquidity mining through Uniswap, a Visa Debit Card, Instant SEPA on and off-ramps for fiat, the ability to vote in the pNetwork DAO, and even a Non-Fungible Token (NFT) Asset Manager, which highlights the latest NFT trends and collectibles. DeFi wallets are incredibly flexible and integrate across several platforms and protocols.
Mobile wallets are software not hardware, like Eidoo’s wallet, which is available on your phone, whereas hardware wallets only allow users to store their assets on an actual device. Crypto web wallets that give access to a wider scope of services and act as a gateway to decentralized blockchain apps are also considered DeFi wallets.
DeFi wallets are brilliant for general crypto asset management whether you are holding crypto or actively trading in crypto. They support multiple currencies and a wide range of crypto tokens and make life so much easier for the user by allowing access to multiple wallets within the ecosystem. The Eidoo ecosystem supports over a thousand different tokens, including all the main ERC-20 currencies, and has a user-friendly user verification protocol called EidooID. EidooID lets the user confirm their identity in the app and connect to multiple other wallets.
DeFi wallets have come a long way, but their development is the foundation upon which a truly open financial system is possible. Financial access and freedom are becoming more and more of a possibility as ecosystems like Eidoo evolve and become more user-friendly.
It will be interesting to see the future evolution of DeFi wallets. What features and capabilities will come next?
DeFi Total Value Locked Hit ATH as Crypto Market Sees Resurgence
The decentralized finance (DeFi) ecosystem has printed its highest Total Value Locked (TVL) today, riding on the back of the resurgence in the broader market. Per data from DeFi Llama, the TVL covering all blockchain protocols is now pegged at $223.23 billion, a massive uplift from the $21.4 billion recorded from January 1 this year.
Per the DeFi Llama data, decentralized exchange liquidity pool on Ethereum designed for efficient stablecoin trading, Curve Finance, maintains the largest share of the pie with a value of $17.08 in TVL. Lending protocol, Aave ranks next with a total of $17.02 billion, while Maker also comes off with a total value locked of $15.43 billion. The growth of the DeFi ecosystem has largely maintained an upward trajectory, as more investors, including retail and institutional investors, began leveraging the earning options the emerging protocols that make up the ecosystem offers.
DeFi creates the most direct threat to traditional finance as the emergence of lending protocols for instance has lowered the barrier to entry for accessing loans. Many new investors also find it easy to commit their funds into the DeFi ecosystem as these protocols are governed by smart contracts, which makes them non-susceptible to the lapses of human-fueled organizational management.
Future Growth to be Backed by Mainstream Market
There is a more positive outlook in the broader digital currency industry, fueled by the optimism of approval of the first Bitcoin Futures Exchange Traded Funds (ETF) in the U.S. Per an earlier Coingape report, the ProShares Bitcoin Strategy ETF could be coming as soon as next Monday, October 18, marking an end to the undying anticipation from investors about such a product.
With the advent of the ETF, more funds will be pumped into the entire industry, and there is bound to be a trickle into the DeFi ecosystem. A number of investment managers, including Grayscale, are beginning to provide funds that track the performance of DeFi protocols, opening up additional avenues for more embrace of the DeFi tokens.
Besides the TVL, the tokens of DeFi projects are also seeing an additional boost with all protocols inking a market cap of $137.47 billion according to data from CoinMarketCap.
Report: Driven by DeFi, North America’s crypto volume increased 1,000% year-over-year
Digital analytics firm Chainalysis reported that the growth in North America’s crypto market has been driven by the rise in popularity of decentralized finance.
In its 2021 Geography of Cryptocurrency Report, Chainalysis said the monthly crypto transaction volume across North America grew by more than 1,000% from July 2020 to June 2021. The monthly volume reached a peak of $164 billion in May 2021 before dipping to just over $100 billion in June.
According to Chainalysis’ report, decentralized finance, or DeFi, was largely responsible for North America continuing to maintain its position as one of the largest crypto markets worldwide. DeFi transactions represented 37% of North America’s overall transaction volume from July 2020 to June 2021, with residents sending roughly $276 billion in crypto to platforms in the DeFi space.
The Central, Northern and Western Europe region sent the most in crypto overall — $389 billion, roughly 40% of its overall transaction volume during the same time period. Chainalysis said “DeFi whales” were responsible for turning the region into the world’s biggest cryptocurrency economy, with the majority of institutional-sized transfers going towards platforms in decentralized finance.
However, the report said North America’s DeFi transactions were led by retail investors in the last year, with many transactions under $10,000. Uniswap was the most popular DeFi platform in North America, with users having sent more than $100 billion in transaction volume between July 2020 and June 2021.
“Right now, DeFi is targeted towards crypto insiders,” said dYdX growth lead David Gogel. “It’s people who have been in the industry for a while and have enough funds to experiment with new assets.”
In addition, Eastern Asia’s crypto market has been declining, likely driven by the regulatory crackdowns on China’s crypto industry and mining in the region. Chainalysis reported P2P trade volume in China had dropped significantly over the last year, ranking the country in the 155th position worldwide compared to 53rd the year prior. Though Eastern Asia still received $591 billion in crypto transactions between July 2020 and June 2021 — a growth of 452% year-over-year — the firm labeled the region as the “slowest-growing” in its analysis.
“Mining isn’t the only part of China’s cryptocurrency economy affected by the crackdown,” reported Chainalysis. “The government has taken other actions such as campaigning against cryptocurrency in state-sponsored media, placing official warning messages on cryptocurrency-related apps, and potentially leaning on social media companies to suppress cryptocurrency-related content.”
DeFi Presents Multi-Billion Dollar Use Case To Disrupt Foreign Exchange Market, According to Shark Tank Star Kevin O’Leary
Shark Tank star Kevin O’Leary is saying that the foreign exchange market is a multi-billion dollar use case for decentralized finance (DeFi), a form of blockchain technology that supporters claim can revolutionize financial services by eliminating the need for intermediaries.
During this year’s SALT conference in New York City, O’Leary relates how investors must rely on foreign exchange middlemen to invest in overseas markets. He says the extra steps required in such dealings are often unnecessary and burdensome.
“Let’s say a traditional mandate, such as I want to go long Europe, I’m going to buy 50 stocks. I have to buy Swiss francs, Euro-based stocks and British pounds because I want to trade them on their domestic exchanges.
In between me and that transaction is what’s called the bane of the earth – the FX trader, the currency trader who clips me every time I buy and sell. Adds zero value and sucks friction out of the system. I can’t wait until we solve this problem and give them a new career shining shoes, because they add no value whatsoever.”
The celebrity investor believes that DeFi has the potential to eliminate costly middlemen from the foreign exchange market system.
“This is where DeFi can take us, on just one use case. But it’s a multi-billion-dollar one, and I want to be alive to have a regulator domestically allow me a payment system to a Swiss franc, back and forth if I want to trade it 50 times a day, with zero FX traders. That’s my mission in life, to help them find a real job.”
In May 2020, O’Leary led a $20 million fundraising round for what is now WonderFi Technologies, a Canadian firm that plans to launch a platform to simplify access to DeFi.