Market Trends

Market Trends

Given the current market evolution, we foresee the following future trends:

• An exponential increase in the number of flash loans to continue over 2021 and 2022, with arbitrage continuing to lead as the primary use case for flash loans. Followed from afar by Liquidations, collateral swaps, and other use cases such as; self-hedging and loan refinancing. It is likely that the pools’ cumulative value will stretch into hundreds of millions or, if possible, billions of dollars. The expanding market demand will create a strong stimulus for new decentralized borrowing protocols to emerge, putting pressure on the flash loan fees and creating new, innovative business models.

• Given the current usages for flash loans, it is expected to see a continued positive evolution for wrapped tokens to reap arbitrage benefits throughout various markets that traditionally were not part of the cryptocurrency space. In a broader sense, tokenization will only be accelerated by the positive evolution in the DeFi space, especially concerning instruments such as flash loans. It is not unlikely to observe more traditional instruments being “wrapped” and exchanged on DEXes, only to become the targeted instrument for flash loan operations.

• Flash loans as a tool benefit from a gradually increasing positive perception in the market as the users also get familiar with it and the use cases. New use cases continue to emerge, and more code-free platforms such as Furucombo appear to offer a UX catered to a non-developer audience, leading to an accelerated adoption. Zap-like structures also try to fill the same gap, creating more straightforward and more intuitive ways of accessing flash lending products in a custom-tailored way, in many cases with the possibility of bundling the financial product with the end-usage and wrapping it up in a “one-click solution”.