3 DeFi Trends to Expect in 2021

2020 has been a whirlwind year for DeFi, which broke new records, surpassed new all-time highs, and garnered more headlines than any other crypto vertical. The total value of locked assets in DeFi protocols rose to , having started the year at just $600M. DEX volumes also rose dramatically: at the start of the year they captured just 0.12% of total market, but by October were soaking up , led by Uniswap, the AMM that everyone in DeFi seemed to be emulating, trading on, and LP’ing in this year.As the cryptosphere pauses to reflect on a remarkable year not just for DeFi, but for the industry at large, it’s also an opportunity to look forward. What trends can be expected to accelerate in 2021, and which new innovations will emerge to become the next Compound, Uniswap, or Aave? While the DeFi space is too fast paced and fragmented to cover every angle, here are three trends to expect over the next 12 months – and the three projects best placed to deliver them.

Liquidity Pooling Will Become Profitable

Liquidity pooling (LP’ing) is how decentralized swapping pools are seeded with tokens by community members. For pooling an equal share of ETH and USDT on Uniswap, for example, you’ll receive a share of transaction fee each time someone executes a trade. In theory, this should provide a steady stream of revenue for LPs. In reality, liquidity providers often lose money when one of the assets they are pooling exhibits volatility, leading to a phenomenon known as impermanent loss (IL). As the year developed, greater understanding of IL emerged, aided by a number of research papers exploring the phenomenon. Yield farmers also learned from experience, during the course of the summer, the perils of staking in ‘pool 2’ containing the native asset of new protocols, where IL invariably occurs. To combat the problem of impermanent loss, and incentivize liquidity provision, new AMMs have emerged that promise a better deal for LPs. is the one to watch for innovation in this domain. The stablecoin DEX and liquidity mining platform has some serious clout behind it, thanks to the backing of its NASDAQ-listed parent company. More importantly, from the perspective of LPs, it has been designed to dramatically reduce impermanent loss, giving token-holders an incentive to pool their assets and earn xSigma’s native governance token.Tackling the problem of impermanent loss from a different angle is stakers to convert their staked tokens into sFTM – the name given to the synths that are tradable on Fantom Finance, and which can be used to mint stablecoins. Expect to see other projects following suit very soon, unlocking the liquidity tied up in “parked” crypto assets, and creating new opportunities for earning yield.

Disclaimer: This material is not sponsored by any organization mentioned in the article.