On 19/01/21 at 10:24am
| Updated on 18/02/21 at 12:26
Cryptomoney is more than just Bitcoin. With the smart contracts of the Ethereum blockchain, new financial products are coming on the market to take advantage of its capital gains more easily and quickly. Nevertheless, this sector remains very volatile.
Smart contracts: the new era of decentralised finance
Making money with cryptomonnaies ? It sounds like a nice scam like the Web has so many of them, but it’s a promise that’s growing and has accelerated like crazy in 2020. Sites such as Compound, Celsius or Oasis offer to pay for your deposits in cryptomoney. Comment ? Thanks to the DeFi, for decentralized finance.
To talk about decentralized finance, with cryptomoney, it’s obvious, since Bitcoin was designed as a « decentralized currency », that is to say independent of a central bank type authority. Its robustness is ensured by the cryptography of the blockchain (the underlying technology) and the miners spread all over the world (they constantly check and validate transactions).
ETHEREUM : BIG WINNER OF THE CHALLENGE
But decentralized finance refers more specifically to the financial services made possible by smart contracts, which can be found on the Ethereum blockchain. This protocol, created in 2015, works in much the same way as Bitcoin, with the difference that it allows money transfers to be programmed if this or that condition is met.
This blockchain, whose token is simply called « ether », is thus used to offer credit or savings services.
For a credit, for example, you put ethers in a smart contract, » explains Simon Polrot, president of the Association for the Development of Digital Assets. You get different tokens in exchange, usually indexed to a fiat currency, and if you want your ethers back, you simply buy them back at their original value. « Kind of like a pawn shop.
Between the spring and fall of 2020, the total value locked, or « pledged », in DeFi rose from $1 billion to more than $10 billion.
This system was developed in particular by the Maker platform (via the Oasis service), which offers, in exchange for the ethers, Dai, a dollar-backed cryptomony. « The advantage for the borrower is that he can invest with a leverage effect, » says Simon Polrot. The advantage for the borrower is to be able to invest with a leverage effect, » says Simon Polrot, « and thus to have quick and easy access to credit in a world where banks are distrustful.
GARE AUX TROP BELLES PROMESSES
Those who use this service bet on rising prices, despite often high borrowing rates (from 2% to 12% depending on the currency). Conversely, one might think that this makes it possible to lend at such high interest rates, but this is not true, as many platforms reserve good margins for themselves. While the promised annualized rates of return are sometimes astronomical (12%), it’s better to turn away from them.
A serious player like Compound offers « only » 0% to just under 3% (depending on the type of cryptomony). These interests are determined in real time according to supply and demand. Compound or Maker are decentralized actors. This means that contracts, including the blocking of pledged funds (collateral), are carried out end-to-end by smart contracts. But others have launched themselves on the same principle, the decentralized aspect at moins : the platform then manages the funds invested. The most famous of these is Celsius, created in 2017, which claims 8.2 billion dollars on loan. The advantage for the user, here, is not to bother with the classic logistics of cryptomoney (mainly storage on a so-called « cold » wallet, because not permanently connected to the Internet).
In addition, Ethereum has launched the test phase of an update that should enable it to handle thousands of times more operations than today. The share price has thus doubled in one year. A « bubble », according to many interlocutors. We should be wary of overpromising, » said Pierre Noizat, co-founder of the French exchange platform Paymium. Smart contracts are opaque, you have to enter the code to find out what happened. « He also deplores the fact that the history of transactions is « difficult to reconstruct », whereas it is much clearer with Bitcoin. His advice with cryptomoney is, in general, to « remain modest and humble ».