2020 was the year of DeFi, not just in terms of the explosive price
increases – but the technological advances and support from public
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　　From the growth of UniSwap, Chainlink, AAVE, and BNB into the top 20
tokens by market cap to tech billionaire Mark Cuban revealing his
positions in the aforementioned tokens, one must wonder what comes next.



　　IMPROVED SECURITY AND AUDITING OF CONTRACTS.



　　Exploits performed by hackers on vulnerable DeFi smart contracts
resulted in the loss of tens of millions of funds throughout 2020 and
early 2021.



　　Flash loan attacks, where hackers can borrow large uncollateralized
quantities of ETH and extract funds from exchange through complex
arbitrage opportunities between stablecoins or manipulation of price
oracles (the price providing part of a smart contract that interacts
with market data outside the chain).



　　Auditing smart contracts before they go live as part of yield farming
or lending strategies by third-party firms such as Nexus Mutual is
necessary – and becoming the accepted norm for DeFi platforms. Users
becoming acquainted with the basics of DeFi development processes and
community-led initiatives to ensure complete auditing of contracts are
also vital to its long-term resiliency.



　　ETH 2.0



　　DeFi has grown from the Ethereum ecosystem but has reached a point
where it is almost impossible to continue in the current Ethereum
paradigm. ETH 2.0 promises lower fees – lending itself to the higher
scalability that is needed for the financial products of the future. But
more than lower fees, ETH 2.0 will hopefully address the first point
raised.



　　As a proof-of-stake chain, Ethereum miners will be unable to modify
blocks that have already been validated – ensuring the robustness needed
for a secure financial ecosystem. Projects like Binance token (BNB) and
Cardano (ADA) plan to capture the DeFi market through their
blockchains, but with the overwhelming majority of initial development
done on Ethereum, ETH 2.0 would likely place the chain in a dominant
position over DeFi.



　　REGULATORY PRESSURES



　　Regulatory focus on crypto has primarily been placed on tax evasion
and other fraudulent activity. DeFi. The regulatory framework for DeFi
by the governments of the US, China, Russia is nearly non-existent.



　　Minimizing exit scams, implementing KYC on DEXs
(decentralized-exchanges), and preventing money laundering remain
pressing concerns.



　　Overbearing regulation, including policy, targeted explicitly at
obstructing DeFi is a critical macro risk that users and project CEOs
must be aware of and account for. Government Policy could ultimately end
up much favoring centralized exchanges such as Coinbase – which filed
to go public on the 25th.