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What is the reason for DiFi’s decline?

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می 14, 2023
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Like any other part of the blockchain world, various things affect the decentralized economy of DeFi, or Decentralized Finance. This financial system undergoes various changes under the influence of various factors and naturally affects related individuals and institutions. Like other parts of blockchain, DeFi has problems and various actors are affected by it. In this article, we are going to check these things and know about the different conditions of DiFi’s decline in this market.
What is DeFi?

In order to be able to examine the reasons for the decline of Difai, it is first necessary to examine it from a structural point of view and understand the concept of Difai. In general, DeFi means decentralized finance. This concept is considered one of the areas of blockchain where services are provided in a decentralized manner. In other words, in this space, there is no news of centralized institutions like the central bank; So, naturally, the factors affecting this market are different from other markets. DiFi market was created with many goals and has advantages. Due to the positive features of this platform, many people have entered it and are now working and making money through it.

The contracts that are formed in the field of DeFi are presented in the form of smart contracts and decentralized programs, and its transactions take place on a peer-to-peer basis. As mentioned, this type of market has many advantages and these features have made people popular and present in this area. One of the most important features of DeFi is its high security.

The reason for the high security of this financial space is that no institution has centralized control over it, and this makes it safe to maintain. With the development of blockchain technology, no manager or high-ranking person is going to direct and control the financial market or have the information of individuals in their hands. In DeFi, information is stored transparently in the blockchain, and most projects have been launched on the Ethereum platform. Of course, there are also significant projects in other networks.

What are the challenges in DeFi?

As in any market, dips in DiFi happen for various reasons and many things are affected by this issue. One of the things that can cause the decline of DiFi is the existence of a bubble and an ICO explosion. In 2017, there was an ICO explosion, and some people think that this explosion may happen again. Because DIFF has many advantages and transparency, many people are attracted to it and this may cause a bubble. Another problem that many experts are always worried about is the low liquidity of the DiFi market.

In the case of this challenge, investors will increase the liquidity of DeFi to some extent and keep it more rational. However, generally low liquidity leads to higher fees. Especially when a certain asset is not supported on the platform and this will increase the fee price. Finally, the exchange of assets is reduced and this affects the performance of DeFi.

One of the challenges that the DeFi market is dealing with is actually one of its advantages! The high security of this market is due to the protection of information and identity of users, but this issue is not always in favor of the system. Because blockchain users do not have to authenticate, fraud and profiteering may occur in this direction and legal pursuits become more difficult. In DeFi smart contracts, many cryptocurrencies are lost and this affects the market. Basically, hackers are not present in normal contracts, and tracking problems and thefts in the blockchain space is sometimes difficult.

Every once in a while, all kinds of frauds happen in the world of blockchain, which have different reasons, and with the development of this space, the number of these profit-seeking increases. Of course, methods are gradually being developed to follow this issue, which help to improve the space. However, there are also schemes in the market that are essentially scams and their existence leads to the decline of DiFi. For example, some time ago, an anonymous user lost $140,000 in the decentralized swap exchange in the Unicat liquidity pool. This person accidentally participated in a profitable agricultural pyramid scheme.

Metamask messaged this person and asked him to spend his ionic platform. This person, who did not know about the fraud process, issued this permission and the attackers made transactions through the user and money was withdrawn from his account. This was not the only scam in the blockchain world and other people were also victims. Following this incident, Unicat managers took decisions to minimize the possibility of fraud. However, sometimes such profiteering cannot be stopped. Events like this cause the decline of DiFi and as a result reduce the credit and trust of the people.

It is interesting to know that recently the market of Diffa has not increased much and the decline of Diffa has worried many people. The head of the Ethereum digital currency also reacted in this case and believes that many things are not right in DeFi and advised people to invest more carefully in cryptocurrencies. Due to the reduction of investments, the value of DiFi is decreasing, this issue may cause the decline of DiFi. Of course, since many things affect the markets and the blockchain, there is a possibility that DiFi will return to the bullish mode again. dIn the photo below, you can see the downward trend of DiFi.

What will DiFi look like in the future?

Experts believe that the future of DiFi is very bright and this market has great potential. Despite the fact that many people are attracted to DiFi and work in it, this market still has a lot of room for improvement and can be very profitable. The services that DeFi provides to users due to its decentralization are increasing, and as the number of blockchain investors and activists increases day by day, DeFi contracts will grow significantly in the future.