Bitcoin
investors are probably thrilled with the coin’s 50% gains over the past few weeks. But that’s nothing compared with the Squid Game token that popped up this week. Pegged to an online game inspired by the hit
Netflix
series, the “play to earn” coin rocketed nearly 5,000% over three days, going from 12 cents to $6. It’s now worth $475 million, according to CoinMarketCap.
Yet if you want to trade the Squid token, you’ll have to venture onto an exchange called PancakeSwap.
Coinbase Global
(ticker: COIN),
Robinhood Markets
(HOOD), and the other major exchanges don’t list Squid Game. PancakeSwap is the only place where it trades, and you can’t buy it with cash—you’d have to swap it for another token, called Wrapped BNB.
Welcome to decentralized finance, or DeFi—the new frontier of crypto and one of its fastest-growing areas. DeFi encompasses freewheeling marketplaces where thousands of tokens are listed and traded, without any oversight from a central authority. Other DeFi networks consist of giant lending platforms that are like crowdfunded money markets or order books for trading. Users add their crypto to a liquidity pool in exchange for fees paid by borrowers who might trade the tokens. Interest rates can top 10%, depending on the crypto and size of the pool.
It’s a fast-growing area. DeFi networks now hold $240 billion, up from $13 billion a year ago. Fortunes are being made—or lost—as traders swap tokens that can surge 1,000% overnight, or pledge their coins to liquidity pools in return for high yields. DeFi is also affecting centralized exchanges, which see both threats and opportunity in the technology. Regulators aren’t pleased, though. They view DeFi as crypto anarchy that needs to be reined in, although no one is sure how to do it.
Traders swap all kinds of digital assets on DeFi markets. Along with the major cryptos, legions of “alt coins” trade on decentralized exchanges, or DEXes, which are like automated market makers, matching buyers and sellers with algorithms. Liquidity pools create the markets and order books, and “smart contracts” set the terms of a trade and settlement.
The biggest DEX markets include dYdX, Uniswap, PancakeSwap, and SushiSwap. (Food is a popular crypto meme.) The prevailing ethos is that you can swap any token, assuming you can find a counterparty and drum up some liquidity. PancakeSwap’s motto: “Trade anything, no registration, no hassle.”
In theory, anyone with some coding skill can mint a token on a blockchain like
Ethereum,
talk it up on social media, and try to build a market on a DEX. Dozens of tokens tie their names to
Tesla
CEO Elon Musk and…
Read More: www.barrons.com