There’s a by-product of DeFi’s boom that is little talked about


In the blockchain world, there is endless talk about the importance of decentralization. But it is a byproduct of the DeFi explosion, of which little is said.

Fractionation is an inevitable consequence of the innovations we’ve seen over the past decade – and when implemented correctly, companies and individuals can benefit.

For example, it is now possible to buy a small fraction of Amazon shares, which may make it more affordable to millions of investors. With a single fee now costing more than $ 3,000, this can be a high barrier to entry for most.

The explosion of unbreakable tokens has created an urgent need for such fractionation to be applied to cryptocurrencies – especially when NFT sells for hundreds of thousands, if not millions, of dollars.

A large number of NFTs now estimate a price much higher than the average customer can afford. Fractionation paves the way for these retail investors to engage with the market, rather than remain idle within the DeFi ecosystem. Better yet, this unlocks greater levels of liquidity, something we all know is key to its proper functioning.

Remembering our roots

Sometimes, it’s too easy to lose sight of the fact that Bitcoin was created in response to the 2008 financial crisis – ultimately giving people a way to control money for themselves and creating a more transparent and democratic economy. While big banks have driven people out, crypto has created a way to accept them.

With the total market cap of all cryptocurrencies recently hitting $ 2 billion, and the total value locked into DeFi protocols around $ 90 billion, there is a threat of history repeating itself. Fractionation gives everyone a chance to enjoy the features that this vibrant ecosystem can offer – allowing us to mutually own assets that they would not otherwise be able to purchase. And if fractionation is removed from the equation, only the wealthiest will be able to benefit from DeFi’s function, significantly limiting market depth.

But let’s just take a moment to consider this from an adoption point of view. If more people have a chance to show interest in a specific product, awareness can grow about its value. Right now, the NFT space is dominated by whales deciding what they want to spend their disposable income on – and that creates fears that the industry’s boom isn’t going to last.

Fractionation gives the masses an opportunity to decide which projects are truly beneficial to an ecosystem, foster innovation and generate passion. There’s the difference between a great football match watched by one wealthy investor behind closed doors, and 90,000 fans with season tickets having a chance to enjoy a piece of the action.

Properly dealing with fractionation

It’s hard to overstate the importance of cross-chain bridges to help DeFi reach their full potential, but achieving transparency in how these bridges are designed isn’t easy at all and we have to be careful. Will they be chained or chained? How are validators selected? And how can we ensure that they always act in our best interests?

Chain bridges are the best option here, as they can help achieve complete transparency, addressing the concerns of users and developers. But there are obstacles ahead. What happens when a large number of users exceed the bottlenecks of connected blockchains? In this case, a bridge can only transfer the issue from one network to another, without ever solving the underlying problem.

Imagine if the crypto world had an infrastructure that could fairly distribute the number of users across different chains – completely eliminating this problem. It would be a feat equivalent to ensuring that passengers in the rush hour are evenly spaced across all trains on a network, eliminating delays and providing everyone with a seat.

Such an approach would mean that the number of users needed to create a question mark on the blockchain would have to be extremely high. As a greater variety of digital assets emerge and user bases between networks explode, technological advances like this become an inevitable feature of DeFi’s future – paving the way to reduce costs of clogged chains while increasing available market liquidity.

Right now, the promise of fractionation is being held back by the extremely fragmented nature of the blockchain industry. The various existing chains are probably best compared to small islands in a vast ocean. Just as air travel has shrunk our world, creating crucial links between various countries, we need to build an infrastructure that makes it easier for travelers in the crypto world to jump from one platform to another.

True financial independence lies in interchain integration – allowing people to combine an infinite number of digital assets with an abundance of different chains.

The views, thoughts and opinions expressed herein are solely those of the author and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Andriy Velykyy is a former Cisco-Certified Network Professional who has worked in IT since 2002, primarily in data center architecture, networking, and switching. Andriy entered the crypto industry in 2015, building mining properties before further advancing in te technical advances such as crypto payment integration with vending machines, cyber security and non-guard multi-chain crypto wallets. His current project, APYSwap, is a protocol for the decentralized trading of tokenized vault shares.