The world of decentralized finance (DeFi) will continue on two paths during 2024: recovery and the evolution of its forms.
The ending year was characterized by a strong winter that lasted for months in the DeFi sector. However, the second half marked a notable change in trend with the beginning of a recovery process that is still underway.
In 2024, the pace of recovery will continue apace, or at least that is what the current environment in the entire cryptocurrency market seems to indicate. Likewise, the constant process of evolution of decentralized finance is expected to continue. The latter is conditioned by some elements such as regulatory tests.
Regulations will be essential when opening the door to institutional capital and tokenization. Although the impact of regulators could contradict the basic principles of DeFi, it is becoming increasingly necessary. Without a regulatory framework, protocols risk becoming very attractive islands for criminals.
Consequently, 2024 could become a year of decisive regulatory experiments for the long-term future of the sector. The push of a possible bull market in the crypto world could accelerate attempts at establishing regulations. A fundamental fact of all this is that it is still unclear how some of the most decentralized ecosystems will be regulated.
Regulation and Transparency: Expert Opinion
In 2023, the crypto industry regularly found itself at odds with US lawmakers eager to impose themselves on the crypto industry. DeFi is unlikely to avoid scrutiny in the coming year.
Nathan Catania, a partner at XReg Consulting, a public policy and regulatory affairs consultancy specializing in crypto, told a media outlet that true DeFi has much less to fear than centralized alternatives.
Catania pointed out that “In 2024, true DeFi will still be outside the regulatory perimeter as it cannot be regulated under existing regulatory paradigms. However, it will be the year that regulators in many jurisdictions, including the US, crack down on HyFi “
Antoni Zolciak, co-founder of Aleph Zero, a privacy-enhancing Layer 1, also believes 2024 will be an important year for regulation, stating that “Major market trends in DeFi will focus on addressing institutional concerns and fostering compatibility with regulatory frameworks.”
The Immediate Future in the DeFi Ecosystem
After the entire journey of the DeFi sector so far, it must be said that it is still missing pieces in its gear. As already highlighted, regulation is the most outstanding. However, in some jurisdictions such as the European Union and the United Kingdom, some experimental steps are already being taken in that direction.
In March of this year, a pilot test called DLT was launched from Brussels and similar steps were taken in London. The immediate future of decentralized finance largely depends on these two developed markets. One aspect to highlight is that macroeconomic conditions could act as slowing elements of regulatory experiments.
In any case, the influx of institutional capital and the tokenization of assets such as real estate are subject to the success of this. Likewise, one cannot talk about an integration of DeFi with CeFi if there is no clear regulatory framework.
Thus, while that is the challenge for 2024, the other side will present a sector in recovery. The TVL and trading volume in DeFi sector protocols could match or exceed 2021 highs. Of course, this all depends on the broad crypto market entering a bull run.
However, this whole environment would be harmful, since as long as there are no rules, the usual problems will arise. These burdens include scammers, fraudulent projects and sloppy risk management.
By Leonardo Perez
