2021 has been an extraordinary year for the cryptocurrency market; with coins like Bitcoin, Ethereum and Binance coin all reaching record prices that have not been seen before. Decentralised finance, also known as DeFi, has seen record highs with the US dollar value of Ethereum locked in DeFi contracts being around $40 billion as of March 2021. This dollar amount has grown from $674 million since January 2020. Central Bank Digital Currencies (‘CBDCs’) have also seen increased attention as the world economy reels from the effects of the pandemic.
For this week’s Member Spotlight, we caught up with Jeff Yew, CEO of Binance Australia to chat about his views on the recent explosion of DeFi and CBDCs, as well as the trajectory of Binance and its recent fully fledged entry into the Australian market.
“The progression of cryptocurrency and digital assets is inevitable as the world continues to progress digitally,” says Jeff. “Most of the world’s money is already digital, but they come in different forms: some government backed, some backed by other assets like gold. Bitcoin and cryptocurrencies have a very important difference because they are open-source and transparent. They are the freest and most censorship resistant form of digital money that the world has ever seen. That itself gives digital currencies like Bitcoin a unique advantage against other government-backed digital money, like CBDCs. Each having their own pros and cons, but the difference now is that people get to choose what’s best for them.”
CBDCs are digital currencies that are backed and issued by a country’s central bank. An increased interest from the retail market, paired with the economic pressures of the COVID- 19 pandemic has prompted Central Banks all over the globe to consider the implementation of Central Bank Digital Currencies. In a September 2020 paper, the Australian Reserve Bank concluded that while there does not seem to currently be a strong public policy case for the issuance of a CBDC in Australia, the RBA will closely watch the experience of other jurisdictions that are considering the implementation of CBDCs. The RBA also announced a partnership with CBA, NAB, Perpetual and ConsenSys on a wholesale Central Bank Digital Currency Research Project in November 2020 with further research released in the RBA’s Payments System Board Update in February 2021. If you’re interested in reading more about CBDCs, we’ve covered the topic in more detail in a previous Member Spotlight.
The Advent of Decentralised Finance
2021 has also been a huge year for DeFi, no doubt prompted by current world events. DeFi is crypto’s answer to traditional financing and lending products, allowing the lending of assets without a middleman.
Most DeFi applications are built on top of Ethereum and Binance Smart Chain with DeFi covering areas such as decentralised exchanges, stablecoins, lending and financing, wrapping crypto-assets to allow for interoperability between crypto such as bitcoin and DeFi, and betting markets.
Lending is by far the most popular use case for DeFi, allowing users to borrow cryptocurrencies, or lend their own to others. Users that lend their cryptocurrency earn interest, and users that borrow cryptocurrency must post collateral. The significant difference between DeFi and traditional lending is that DeFi doesn’t require Know Your Customer checks. This risk,as well as other risks such as market volatility, is often countered by an overcollateralization when borrowing, as is the case in platforms such as Maker DAO.
DeFi lending could not exist without stablecoins, which are cryptocurrency alternatives to traditional fiat currencies. Stablecoins peg their value to a fiat currency, such as the US Dollar, and act as a stable asset to transact with.
Jeff noted that, “Bitcoin is often likened to Gold in that it is a strong store of value but potentially lacking as a means of facilitating regular transactions. For DeFi to function properly, the community needs a way to price products and services that is recognised by everyone and isn’t fluctuating the way Bitcoin might. That’s where stablecoins come in. And equally importantly, the community must continue to work together with regulators to ensure the advent of blockchain and crypto hold benefit for all involved.”
Many users are attracted to the DeFi market due to Yield Farming. Yield Farming is similar to staking, except Yield Farming does not facilitate a consensus mechanism. Instead, it serves as an economic incentive for users to fund a liquidity pool. A liquidity pool is the pool of funds within a DeFi platform that enables the movement of cryptocurrency within a DeFi platform. Upon committing crypto to a liquidity pool, those users are often rewarded with that platform’s governance token, which can be used either within the platform (often to cast votes in its governance mechanism) or sold on the open market. Think of it as a form of interest generated as a result of your deposit into the liquidity pool. These tokens that are granted to users generally only carry a speculative value, but some, such as Uniswap, have gained significant value. While the current boom is reminiscent of the Initial Coin Offering (ICO) craze in 2017, a considerable difference between ICOs and DeFi, apart from the far more mature ecosystem and market, is that ICOs were typically sold on the basis of nothing more than a whitepaper; a promise, while DeFi projects are generally live and functioning systems.
“We’ve seen in a short period of time DeFi open up a range of alternative opportunities for those interested in the space to not just grow the value of their money, but also contribute to the development of DeFi and crypto in a meaningful way”, says Jeff.
Binance Australia is at the forefront of all things crypto, being a considerable supporter of the DeFi space, particularly in a COVID-19 impacted economy.
“We’re seeing an increasing number of members of the crypto community look to DeFi opportunities as a way to sustain themselves financially which is fantastic because these opportunities were non-existent five years ago. And in a time where employment, high-interest accounts and traditional income streams have been difficult to come by, it has really highlighted the value DeFi potentially offers. At Binance Australia we are committed to grow the level of education available to the public as well as working with regulators on an ongoing basis to facilitate the growth of crypto in all its facets in Australia.”
COVID-19 has not only been a catalyst for crypto-market growth, but also for how a business pivots in a new digital age. Binance Australia has had an established presence in Australia since early 2019 in the form of Binance Lite Australia and have been actively engaging in local communities through meetups, panels and events. However, COVID-19 forced the Binance mid-2020 launch to become more digitally focused. “Staying close with our users is a challenge in times like these. We’ve switched physical meetups to virtual ones and hosted more regular AMAs throughout our online channels than we did before. But the good thing is that we’ve been able to engage with our users and community more,” said Jeff. “We have a lot of activity planned in the Australian market, including a series of free online courses to help guide beginners into the crypto space safely, and also more advanced content for veteran traders and startups looking to build cool applications within the ecosystem.”
Jeff wrapped up with an update on how Binance is doing in Australia, “We’ve recently revealed our Australian centric homepage, based on the great feedback we have received from our community. The new homepage is beginner-friendly and features quicker access to the features our users love. Be sure to check that out at binance.com/en-AU.”