• Regulatory uncertainty will be a major obstacle for the increased adoption of the Ethereum DeFi ecosystem.
• Yearn Finance’s creator has launched a new protocol for borrowing and purchasing ERC-20 tokens.

2021 is just beginning, but investors have high expectations about the opportunities to make profits this year. Without a doubt, ETH is one of the cryptocurrencies to watch during the next months while the bull market continues. In Ethereum’s DeFi sector, the opportunities for growth remain high, but its main protocols could face one big obstacle.

The top DeFi projects

According to analyst Alex Krüger the top protocols in Ethereums DeFi are Uniswap (UNI), Maker (MKR), Compound (COMP), Aave (AAVE), Synthetix (SNX) and Yearn Finance (YFI). The economist believes that these projects are building “high-caliber” products, but that they will be kept out of the mainstream and institutional investors.

During 2020, the high participation of institutions had a crucial effect in making Bitcoin exceed its all-time high. Something similar is unlikely to happen in decentralized finance due to regulatory risk, explained Krüger.

In the short term, new investors and institutions will prefer to invest in Litecoin, Bitcoin Cash, Ethereum and Bitcoin because they have a low risk of being classified as a security by the U.S. Securities and Exchange Commission (SEC), as was the case with XRP and the lawsuit filed with Ripple Labs.

In the last few weeks, the legal process that has been initiated against the payment solutions company and some of its executives has caused much controversy. A court decision is still pending, therefore, the implications for the crypto industry are uncertain. Krüger believes that other tokens could be classified as securities under U.S. law.

However, the economist remains optimistic and considers that this is a stage that will be overcome. In that sense, he stated the following:

Regulatory burdens and access limitations are tantamount to a lid on top of DeFi. This lid, these barriers of entry, are temporary. Once lifted, assets should outperform dramatically as new money pours in. The technology is revolutionary.

In the short term, most of the users of the DeFi protocols will be people familiar with cryptocurrencies. Meanwhile, Krüger believes that centralized finance “should” boom and reach more people in the mainstream. This is because users will feel more confident allocating money to a regulated platform, without the risk of it being targetted by the authorities of a given country.

In his predictions for 2021 Ethereum developer, Eric Conner, agrees with Krüger. The developer believes that there will be a regulatory crackdown for at least 1 DeFi protocol. As experts have stated, the UNI and Uniswap token could be one of the SEC’s targets.

Partnerships and a new product for Yearn Finance

At the end of the year, Yearn Finance’s team has consolidated a series of partnerships to attract more users and increase the interoperability of the protocol. Together with SushiSwap, Keep3r, C.R.E.A.M. Finance, Cover and Pickle, users will have access to a variety of products and features that will keep Yearn Finance one of the strongest contenders in DeFi for 2021.

On the other hand, Yearn Finance creator, Andre Cronje has launched a new product called yCredit. Through the protocol, funds can be deposited to borrow or purchase ERC-20 tokens. The currently supported tokens are AAVE, BNB, BUSD, CRV, COMP, DAI, ETH, LINK, MKR, REN, renBTC, SNX, SUSD, TUSD, UNI, USDC, USDT, wNXM, wBTC, and YFI.

However, Cronje has warned that the protocol is still in a testing phase and could have security risks. Therefore, all investors should use it with caution.

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