Interests in Ethereum have soared to new heights. On Google, the keyword “Ethereum” has increased by more than 350% in terms of online search by internet users.
It indicates that investor expectations in Ethereum could be repeated in 2022. Last year, the Ethereum (ETH) crypto went from under $1,000 at the beginning of the year to making highs of $4,800 in November 2021.
While multiple factors contributed to this price rally, the biggest one was the wide adoption of Ethereum in DeFi. Ethereum continues to dominate the DeFi ecosystem and has also found a massive use case in the NFTs market. At the moment, over $25 billion worth of Ethereum is locked in DeFi, and the amount is rising.
This then leads to the question, will Ethereum's price double in 2022 due to the future of DeFi? Analysts believe that the odds of Ethereum doubling in value are pretty high. According to the market prediction by FSInsight, Ethereum could test $12,000 within 2022.
This would be an over 300% rally from its current price. FSInsight is pegging its prediction on the potential of Bitcoin to uplift the entire market. Their prediction for Bitcoin in 2022 is $200k, which would be good news for Ethereum.
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Over and above such speculations, there are many investors who believe that Ethereum is right in the middle of the future of Finance. With the explosion of DeFi last year, and the growing momentum in this space in 2022, investors believe it could drive Ethereum demand and easily see ETH double in value.
Ethereum is quite an exciting cryptocurrency, especially when compared to Bitcoin. Bitcoin relies on the entry of new money to grow in value. Ethereum was the same a few years back, but that is no longer the case. Ethereum now draws a huge portion of its value from the many protocols, DeFi and otherwise, building on top of it.
John Zannos of Inflection VC best captures this view. Zannos recently said that, while it may be difficult to predict where Ethereum will go next, he was optimistic about its versatility as an open-source technology platform. That's because it can support financial services through self-governance applications with smart contracts acting like legally binding agreements.
There has also been a growing view that the current financial system favours big financial institutions. This was one of the biggest drivers to Bitcoin's early success and is the fuel behind the explosion of sophisticated DeFi applications over the last couple of years. This is further giving traction to the fast-growing ecosystem of DeFi projects that are building on the Ethereum blockchain.
Analysts are also optimistic that Decentralized Finance could be more resilient, hence better placed to cope with world economic issues than the current system. One person who holds this view is Alan Lane, the CEO of Silvergate Bank. Alan Lane believes that DeFi could enable more efficient ways to manage money and democratize access for all people in need of financial services.
Lane's view is premised on the idea that, unlike the current financial system where you need to open a bank account for you to access financial services, with Decentralized Finance, you only need an internet connection. With the internet and a smartphone, you can send and receive money, and also borrow and lend without an intermediary. It all takes place on the blockchain.
The big deal about all this is that a huge segment of the world population has zero access to the banking system. DeFi is a unique opportunity for these people, who are in their billions, to enjoy the benefits of being involved in the financial system, such as borrowing to grow business, among others. Essentially, this means there is massive room for Ethereum to grow as the world's unbanked populations adopt blockchain technology.
- What is Ethereum?
- What is Decentralized Finance?
- Ethereum's DeFi Protocols And How They Compare To Centralized Finance
- So, Is Ethereum A Good Investment With Its DeFi Protocols?
- Ethereum Price Prediction In 2022 Through The Lens Of DeFi Protocols
- How To Invest In Ethereum
What Is Ethereum?
Ethereum is an open-source software platform where people can create decentralized applications (Dapps) with smart contracts. The security of the Ethereum blockchain makes it well suited for all types of Dapp needs and makes Ethereum's native cryptocurrency, Ether, one of the most valuable cryptocurrencies in the market today.
Through the Ethereum blockchain, developers can create smart contracts that can be used to execute any parameters and conditions. For this reason, Ethereum is revolutionizing entire industries, Finance being one of the largest.
What Is Decentralized Finance?
DeFi is an exciting new way to do banking without all the hassle of using an actual bank. With decentralized finance, you can trade assets and make money on interest rates or loans, without a bank acting as an intermediary. This is all thanks to smart contracts that are written on decentralized blockchain platforms such as Ethereum.
Over the past year, DeFi has been gaining traction on social media and other online platforms. This has a lot to do with the opportunities it offers investors to earn a passive income.
Unfortunately, a considerable portion of the world population still has very little understanding of how DeFi works. That's because most of the articles online that tackle this topic are either too shallow or make it too complex for the average investor to understand.
Luckily for you, this is the perfect place to learn all there is to know about DeFi. You will understand how DeFi is close to giving centralized Finance a run for its money, at a scale never witnessed before.
Ethereum's DeFi Protocols And How They Compare To Centralized Finance
The banking system, as you know it, is what is referred to as Centralized Finance. On the other hand, Dapps that rely on the blockchain to offer banking services make up what is commonly known as DeFi. In short, Commercial Banks (Centralized organizations) have a central command, while Dapps (Decentralized applications) rely on smart contracts to offer the same services.
Commercial banks make money by taking in deposits from customers and then loaning them out. They do this through many different channels, but it all comes down to two things: accepting clientele with an agreement of repayment on behalf of yourself (the depositor) or giving your own creditworthiness as a guarantee for someone else's loan application - which means putting up some collateral if necessary so there will be no issues later when repayment time arrives.
Essentially, the person depositing to a bank account acts as a liquidity provider, with the incentive of earning interest on the deposit.
On their part, DeFi applications are creating an entirely new financial system that does not rely on intermediaries such as banks and clearinghouses. In DeFi, interest rates are set automatically based on demand and supply for loans from borrowers. The most exciting aspect of it is that the participants (borrowers and lenders) don't know each other when it comes to DeFi. The safeguards for capital protection and collateral requirements are all encoded in a smart contract.
Essentially, anyone in the world can use DeFi to earn by lending, and anyone, regardless of their past financial history can get a loan to do whatever they want.
DeFi has become so powerful and disruptive that even the traditional banking system is starting to take note. For instance, in 2021, banker Caitlyn Long, the founder of de novo Avanti Bank, said that cross-border payments as currently done by banks are lengthy and excessively bureaucratic.
Similar views are carried by Bank of America, one of the largest banks in the U.S. In 2021, Bank of America released a report indicating that while Bitcoin was merely a speculative asset, Ethereum had more features. Bank of America specifically noted Ethereum's power to run DeFi applications, which it says were potentially disruptive to the banking system.
One of the biggest DeFi protocols that have emerged in the Ethereum ecosystem is Compound. Compound (COMP) is an Ethereum-based platform used to borrow and lend different cryptocurrencies and has experienced rapid growth since it launched.
Compound currently has 19 markets, and $11.57 billion are already deposited and earning interest. Compound (COMP) also currently has $4.42 billion that is already borrowed for various uses. When going to press, Ethereum was the most deposited asset, with those depositing Ethereum earning an average APY of 0.08%. When writing, the Compound token (COMP) was trading at $135.2 and had dropped by 6%.
COMP circulating supply at the time stood at 6,558,858.85 COMP, trading volumes of $107,594,362 and a market capitalization of $886,798,107.
Since anyone can borrow in a DeFi environment, you are probably, wondering how are deposits secured from defaulters? Well, unlike in centralized Finance, DeFi loans are over-collateralized. This means the borrower has to put up more security than what they intend to borrow.
Besides Compound, many other decentralized finance platforms run on Ethereum. One of the more notable ones is Aave. Aave strives to provide non-custodial, decentralized, and transparent liquidity for all users through its website or mobile application.
With Aave, anyone can take part in Finance, either as a depositor and earn a passive income or as a borrower. The most interesting thing about Aave is that it offers both over-collateralized and under-collateralized loans. Its over-collateralized loans are perpetual, while the under-collateralized loans are offered one block at a time.
Aave was trading at $178.38 and had a market capitalization of $2.24 billion when writing this article.
Check Out: Is Ethereum (ETH) Worth Buying In 2022?
Would you consider investing in Ethereum (ETH)?
Investment Banks (Centralized) vs Yield Aggregators (Decentralized)
In Finance, an investment bank is a company that provides financial services such as brokering or advising on complex deals. Investment Banks often involved in IPO's and merger talks between competitors- they also act as financial advisors to both individuals and institutional investors. Essentially, they act as the middleman between investors and large corporations.
Investment banks also have a role to play in the public sector. For instance, governments usually go through investment banks when they intend to raise finances through bonds or other financial instruments.
Some of the best-known investment banks are JP Morgan, Goldman Sachs, and Morgan Stanley. They help their clients choose investments in the right assets, while also considering the proportionality of risks that come with such investments.
Decentralized yield aggregators are the decentralized version of investment banks. Some of the best-known ones are Yearn Finance and Harvest.
Yearn Finance is an Ethereum-based set of protocols to help investors get maximum yield when lending in DeFi. Since the system is automated, it automatically invests in the highest yielding DeFi places automatically.
Essentially, when using Yearn Finance, you do not go through the hustle of analyzing DeFi projects individually trying to seek out the one with the best interest rates. When writing this article, Yearn Finance was trading at $24,843. It had a market capitalization of $910,209,124, and trading volumes of $147,044, 942.
Centralized Exchanges vs Decentralized Exchanges
An exchange is basically a platform that is used to trade different assets. These assets range from commodities such as gold, fiat currencies to cryptocurrencies. A cryptocurrency exchange is an online platform where users can exchange fiat currency for cryptocurrencies. Users can also buy, sell, or exchange cryptocurrencies.
The exchange of fiat currencies for crypto or vice versa is essentially Centralized Finance. That's because for you to do such an exchange, you need an intermediary, the most common intermediaries being Coinbase and Binance.
On the other end of the spectrum are decentralized exchanges. Decentralized exchanges are peer-to-peer marketplaces where transactions are done directly between cryptocurrency traders. They have been one of the most popular ways to trade cryptocurrencies because they eliminate any third-party interference in financial arrangements, allowing users greater freedom than ever before. Some high profile examples include Uniswap and SushiSwap, which run on Ethereum's blockchain
Uniswap has, over the last few years, emerged as the most dominant Decentralized Exchange in the market. Uniswap is a cryptocurrency exchange that uses an innovative decentralized network protocol. The company that created it is also called Uniswap and had the primary goal of facilitating automated transactions between different tokens on the Ethereum blockchain. So far, it has been a huge success, as indicated by the billions of dollars worth of tokens that are traded there daily.
When writing this article, the total trading volumes on Uniswap version 3 stood at $2,295,515,600.26. Uniswap also had a market capitalization of $7,279,775,790. The Uniswap token was trading at $11.51.
Uniswap continues to play a major role in the growth of decentralized Finance. For cryptocurrencies to grow and change the world of Finance, decentralized systems like Uniswap will have to play a central role in everyday crypto transactions.
So, Is Ethereum A Good Investment With Its DeFi Protocols?
As long as one diversifies their portfolio, Ethereum is a great investment. That said, Ethereum in itself is a pretty diverse ecosystem. While Ether is the native token of the Ethereum blockchain, Ethereum derives a lot of its value from the wide number of projects building on the Ethereum blockchain.
For this reason, analysts have high expectations that Ethereum will double in 2022. According to Fred Schebesta, the founder of Finder, Ethereum could easily test $7,000 within 2022. Schebesta is betting on Ethereum's expanding scope of projects and the growing awareness about Ethereum's capabilities amongst investors globally.
Other analysts are more optimistic about Ethereum's short- to medium-term odds. One of them is Brian Schuster of Ark Capital. Brian Schuster, a senior analyst at Ark Capital sees Ethereum as the first cryptocurrency that will break the $100K price tag by 2024.
Schuster believes that this will be triggered by the explosion of Web 3.0 applications on the Ethereum blockchain. Schuster also expects it to surpass Bitcoin by market capitalization and become the largest cryptocurrency.
Some analysts also believe that the shift to Ethereum 2.0 will draw in more Dapps developers on the Ethereum blockchain. This will, in turn, drive up the price more from where it is today by more than 100%.
One such analyst is Joseph Raczynski of Thomson Reuters, who believes that Ethereum could test $8,000 in 2022 and $15,000 at some point in 2025. Raczynski is betting on the scaling capabilities brought about by Ethereum 2.0, which is expected to become fully operational by mid-2022. It will make Ethereum more attractive for DeFi and other applications, a factor that could see its value rocket.
Ethereum Price Prediction In 2022 Through The Lens Of DeFi Protocols
Ethereum's price is heavily correlated to the growth of the DeFi assets that continue to build on top of it. If activities on some of the top DeFi projects that are building on top of Ethereum are anything to go by, then Ethereum could not only double in 2022 but also test much higher prices by 2025.
For instance, Yearn Finance, one of the top yield aggregators on the Ethereum blockchain, has very good projections from analysts. For example, analysts at Wallet Investor expect Yearn Finance to be trading at $241,198 by the end of 2025.
Other analysts are pretty bullish on Yearn Finance, too. For instance, Trading Beasts expects Yearn Finance to test $126k by 2025.
Coinpedia is also pretty bullish on the prospects of Yearn Finance and expects it to cross the $100k mark over the coming years.
Analysts are also pretty bullish on Uniswap (UNI), the world's largest decentralized exchange.
According to a Uniswap price prediction by Digital Coin Price, Ethereum could end 2022 at $15 but rocket to $25 by 2025.
Wallet Investor analysts are pretty bullish on Uniswap as well. They expect Uniswap to grow by over 90% in 2022 and close the year at $20.21. They are also pretty bullish that Uniswap could be trading at $53 by 2025.
Another Ethereum DeFi cryptocurrency that analysts are optimistic about is Compound. According to analysts at Digital Coin Price, Compound could end 2022 at $191 and trade at $299 by 2025.
Such strong projections for Ethereum DeFi protocols could drive Ethereum past the $100k mark, as projected by Brian Schuster.
Don't Miss: Ethereum (ETH) Price Prediction 2022 and Beyond
How To Invest In Ethereum
There are multiple regulated exchanges and brokerages where you can buy and sell Ethereum. At Trading Education, we have looked at most of them, and based on experience, recommend eToro. It is much easier to open an eToro account than many of the other cryptocurrency brokers out there.
With eToro, the process is straightforward, and there is a clear "SIGN UP" bottom to help you open an account.
Once you click Sign up, you will be prompted to fill out a form with your email address, phone number, and name. These are the only major REQUIRED DETAILS when opening an eToro account.
To ensure that your account is opened successfully, make sure only to fill the form with the correct personal information. There is an account verification process after signing up so you can open an account with fake credentials.
During the verification process, you will be taken through a Know Your Customer (KYC) process. It is a legal requirement on all regulated brokerages so it's nothing to worry about.
Besides, the VERIFICATION PROCESS is pretty straightforward. You will only be asked to provide identity documents such as a driving license, national ID, or a passport. You will also be asked to provide a bank statement or a utility bill to help confirm that the billing address you provide is correct.
Once you are successfully verified, you can now DEPOSIT MONEY (fiat). Etoro accepts a wide range of currencies, and multiple payment methods, including wire transfers, Skrill, Neteller, Sofort Banking, Rapid Transfer, Local Online Banking, iDeal, and Credit Cards.
After successfully making a deposit, go to eToro's Ethereum page and MAKE YOUR FIRST ETH PURCHASE.
Many crypto experts and analysts agree that blockchain technology is the future of business. They believe that smart contracts will revolutionize everything from Finance to logistics.
For instance, Deloitte, one of the world's largest accounting firms believes that once blockchain solves the problems of scalability and interoperability, it could transform entire organizations.
Ethereum is one of the blockchains that are likely to benefit the most as decentralization gains mass appeal. Already more than $20 billion worth of Ethereum is locked in DeFi. Ethereum is also almost done with the upgrade to Eth2.0, which will deal with the challenge of scalability. This could see ETH give investors a high ROI in short to medium term.
Ethereum is also becoming more appealing as an investment by institutional players. For instance, since 2021, investors have been able to trade ETH futures on the CME. This has helped create more liquidity for Ethereum, a plus for long-term growth.
All these factors point to the potential of Ethereum to more than double in price in 2022. Essentially, investors expect ETH to be valued at $6000 in 2022.
eToro – The Best Platform To Buy Ethereum
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