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Inflation is the gradual devaluation of money caused by an increase in the printing and circulation of fiat money. In other words, it’s a condition where each unit of currency buys fewer goods and services over time, effectively causing prices to rise. It’s an unfortunate byproduct of modern monetary systems that have fiat currencies, like the US dollar, as their primary asset, which central banks can manipulate to alter monetary policy in any given economy. An example of this would be when central banks change interest rates or buy government bonds from banks, which increases the money supply and leads to inflationary pressures on the economy.

Bitcoin and similar cryptocurrencies are a solution based on trust. Blockchain-based technologies give people around the world a new way to save, invest, and transact with confidence in an economy that’s plagued by runaway inflation. People who don’t trust their government will have little incentive to keep their wealth in fiat currency like USD when they know its value is constantly decreasing. Inflation presents an opportunity to boost the BTC market but only if people trust it. Cryptocurrencies can help protect capital from inflation by making saving money in digital assets safer than putting all your eggs in a government ruled basket. But crypto can only be a secure alternative if the community is behind it. The recent fall in BTC’s price is sufficient proof of how key endorsement can be. This crypto sell-off was born out of collective anxiety surrounding inflation and the increase in prices, which made investors shift from crypto to more traditional assets.

Stablecoins and their Role During an Inflation Period

During this time of economic uncertainty, some stablecoins, like TerraUSD, lost their 1:1 peg to the dollar. That was not the case with USDT. Tether has kept its peg to USD during unstable inflation times, a feat no other stablecoin has managed to replicate. Despite new stablecoins coming into existence and fiat-pegged coins being touted as solutions for stability, Tether has held its value because it’s backed by billions of USD in assets. Now that more investors are trusting these types of cryptocurrencies as legitimate stores of value, they’re becoming an integral part of an inflation-proof portfolio.

It is not clear if crypto is going to be able to solve inflation. Cryptocurrencies with a fixed supply should theoretically help mitigate instability, but whether or not they can solve it is another story. The truth is that, during the time of economic uncertainty, the bulk of digital assets were sold in a panic giving crypto cero chance to prove its potential. That being said, it’s no surprise that when doubts fade, cryptocurrency goes back to being popular among investors, both new and experienced. The meteoric rise in value has been great for crypto, but it still doesn’t make it a safe investment. Crypto offers uncorrelated returns, meaning crypto won’t necessarily move in tandem with other assets like stocks or bonds. Although crypto makes a portfolio more resilient to inflation, some unique risks are associated with crypto.

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The Battle of Crypto vs Inflation: Who Will Win?

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Decentralized finance has been thriving since 2020 and it doesn't seem like the love for the no master market is going to fade. The main reason for the growth of these apps and protocols lies in the potential of this technology. The defining word for this potential is independence. See DeFi developers create apps based on code-based contracts (Smart Contracts). Later they hand over the ownership of this technology to the users, making the transactions ungoverned. With this in mind, it is easy to see why decentralized coins and tokens have grown so much in the past couple of years. Now, let's take a closer look at the decentralized altcoins that will surely create hype in the near future.

The developers behind Terra set out to create a decentralized smart contract management system, or a blockchain operating system, as they like to call it. The terra protocol consists of two main tokens, Terra and Luna. Terra is a stablecoins linked to the price of fiat currencies. Luna (LUNA) is Terra’s native token, which can be used as collateral on margin trading or staked in a rewards pool to generate compound interest income. This governance token is used to absorb the price volatility of terra by burning either Terra or Luna according to the supply and demand of the moment.  In other words, users burn Terra to produce Luna and burn Luna to produce Terra. As a dynamic supply native token, Luna has seen incredible growth since its inception and offers unique functionality within the emerging decentralized finance (DeFi) space.

Uniswap is a protocol for decentralized ERC-20 token trading. This means users can swap between different ERC-20 tokens without needing a centralized exchange. In other words, it’s an open protocol anyone can plug into, which allows anyone to build a better exchange that connects with Uniswap and makes cross-chain swaps possible. Uniswap's governance token is UNI, which is given as an incentive to users to maintain the liquidity of the exchange. In 2021, Uniswap’s grew had in hand with the Decentralized Finance boom and became the leading exchange on Ethreum’s blockchain.

The Avalanche Network is an emerging technology that attempts to solve Ethereum’s scaling issue by creating a layer-2 scaling solution on top of Ethereum. The network is able to achieve significant throughput, processing thousands of transactions per second and serving as a suitable infrastructure for widespread, mainstream use cases. Avalanche’s native token is AVAX which is used as a payment and reward unit for users. Market experts are betting on the bright future of the Avalanche platform for a number of reasons. One of them is that the Avalanche Foundation announced incentive programs to burst the growth of the network. Another motive for hope has to do with the custom possibilities the platform offers for decentralized applications.

Chainlink is a tokenized decentralized network that provides a solution to a gap left by Ethereum: off-chain data supply. With Chainlink you get an oracle solution that is meant to provide external data for smart contracts. It also serves as a decentralized oracle network. The LINK token was originally issued on Ethereum’s blockchain but was later migrated over to its own chain. This altcoin allows for data-driven smart contracts through different blockchains.

Polkadot is a platform meant to connect different blockchains together and make it easier for developers to build DApps. Polkadot is one of many potential game-changers for Ethereum’s scaling. Fully implemented, Polkadot can host up to 100K transactions per second, making it by far one of the most scalable public blockchains on Earth. But scalability is not the only promising feature of this multichain network. Polkadot also opens up new possibilities with off-chain and side-chain interoperability. These open new avenues for Decentralized Finance (DeFi) projects on Ethereum and other private and public platforms. Polkadot’s native token is DOT which serves as bonding to add new parachains, and it provides governance to the holders.

In only a few years, tokenization and decentralized applications have already made a significant impact on how people invest and interact financially with others on a global scale. Next year won’t be the exception since the entire market predicts this incredible growth of DeFi to continue!

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5 DeFi Tokens to Watch in 2022

Decentralized Finance (DeFi) refers to the products that function on public blockchains and their markets. What “public” means in this context is that the system is controlled by the users of a blockchain and not by a singular private entity. Since 2020, DeFi markets have witnessed substantial growth that is directly linked to the innovation possibilities offered by this technology. But, this growth did not go unnoticed by world leaders, and the menace of more tax lawmakers intervention is becoming a reality.

During the last year, DeFi has attracted a robust amount of interest and capital. Even though DeFi mimics traditional markets, the possibilities offered by a technology that relies on smart contracts are virtually endless. Traders can really own their assets, participate in public coordination of markets, generate interest, trade without control or regulation of any third party and lend and borrow money peer to peer. The incentives behind DeFi assets have lured the public. This participation creates liquidity, which makes the assets stronger.

The truth of the matter is that the function of DeFi is, essentially, to investment which means that market speculation is a part of the deal. Even though speculation poses a risk in DeFi and any other market, these risks are assessable. This just requires education. The truth is that any wrongdoing from a user is completely trackable and results in public exposure within the blockchain. However, it is impossible to control the market’s volatility, and a user can only avoid losing money by staying on top of their asset's highs and lows.

A regulated DeFi market is a concept that the purist users consider a clear contradiction. A decentralized system cannot be controlled by a third party by definition. So, what can heavy regulations bring to the table for a market that originated solely on the idea of being controlled by its own community? The truth is that traders may debate on the matter, but that won't stop the laws from changing, so it might help to start looking at the bright side of it all. Still, in any financial environment, some well-applied regulations can create a safer environment for investors. For instance, some rules regarding the anonymity aspect of DeFi can actually strengthen the users' security, meaning you could still be anonymous to the rest of the users but be held accountable by law enforcement if you commit fraud or any other criminal act.

Logic dictates that, in a system whose main allure is no third-party control, heavier regulations may cause wide disappointment and an understandable massive user dropout rate. Even though this might be the case, there's a possibility that decentralized finance could evolve into a different kind of animal or that users could workaround the barriers that may come, as they did in China, with offshore exchanges and peer-to-peer trading. But the second option might be like putting a band-aid on a fractured leg. The main burden still lays on lawmakers since to really shut down a DeFi company, they will need to extinguish Ethereum altogether.

Even though governments are coming in hard, the battle in Congress is not one-sided. DeFi-educated candidates are willing to fight the pro-crypto battle in the legal arena. This is the case of Oregon’s Democrat Congress candidate Matt West. West has a Ph.D. in chemical engineering, and he moonlights as a DeFi-developer for Intel. The candidate advocates for a more realistic approach to crypto legislation and believes that the latest actions by lawmakers are “out of touch and destructive.” He plans to show the US Government that crypto matters.

The subject of regulation is highly political and ideological, with large government agencies attempting to gain control over decentralized markets. There might be some middle ground between government and users' wishes when it comes to working on regulations that attempt to work on the crime accountability aspect of the current anonymity management in DeFi. However, enforcing more restrictions could be useless since this technology evolves at an amazing pace, working out alternatives for every obstacle encountered.

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What Does the Future Hold for DeFi?

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