DeFi Market

What Might Happen to the DeFi Market in 2022: Outlook, Tokens, and Regulation

DeFi market… What projects of decentralized finance can potentially show high profitability? Why can the DeFi segment grow even with a bearish trend actively? How will the US government control the industry? Read in our LATOKEN review!

In November, the total frozen value of assets in decentralized finance (DeFi) projects surpassed $111 billion, setting an all-time high, according to DeFi Pulse. In 2021, the DeFi sphere has grown exponentially, and many new decentralized projects have appeared on the crypto market. Let’s try to figure out what might happen to this industry in the next year and what risks might be expected by investors who want to invest in DeFi projects. 

High-level perspective of DeFi market

The decentralized finance segment today imposes high liquidity and investment attractiveness. Therefore, the outlook for the DeFi sphere may remain high even during the bearish trend in the crypto market.

The growth of the DeFi segment may continue for many years to come, as stablecoins are the main driving force of the industry. However, in the case of another cryptocurrency trend of recent years—NFT—it does not have such a stable basis. The NFT market is more susceptible to investor sentiment and manipulation.

Many crypto enthusiasts hope that the decentralized finance segment will grow and develop in the future. The entire financial system of the world may change based on DeFi projects. However, of course, you cannot be sure of anything regarding cryptocurrencies. 

Cardano, an interesting DeFi project

In essence, Cardano is an improved Ethereum platform. The developers took into account all the cons and issues inherent in creating Ethereum and were also able to integrate the most promising proposals. Today, this token is excellent for smart contracts and decentralized games.

Want to start trading Cardano? You can always do it on the LATOKEN exchange!


Regulatory risks

Over the past few months, several American politicians have openly criticized the DeFi industry and also called for its regulation. The last such statement came from Massachusetts Senator Elizabeth Warren. She stated that the DeFi segment is the most dangerous part of the crypto market. Warren explained that there are a lot of crypto scammers in the DeFi industry and little to no regulation.

In August, the head of the US Securities and Exchange Commission (SEC), Gary Gensler, announced the need to regulate the sphere of decentralized finance. The official also questioned that most projects in the industry are indeed decentralized.

Two main factors concern the US financial authorities. The first and most obvious factor is investor insecurity. There are frequent cases of creating smart contracts that are unaudited and contain the possibility of inconsistent asset withdrawal. DeFi projects are also hacked quite often, which leads to loss of funds, and, in fact, the investor in the current situation is not protected by anything.

For example, on December 13, there was a major hack of one of the DeFi projects. Hackers stole $100 million from users of the Vulcan Forged NFT marketplace, gaining access to private keys.

The second cause of concern for the US authorities is the growing role of DeFi products and the more obvious opposition of these solutions to classic banking products such as deposits, loans, and other services. The main risk, in this case, is not that, over time, DeFi projects will oust classical players from the financial market, but that this may lead to a crisis in the financial and banking sector.

So far, there is no way to regulate the whole DeFi segment. If a separate crypto exchange or crypto project can still be regulated, it is hardly possible to do this with an entire industry where new projects regularly appear.

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LATOKEN crypto exchange does not provide any investment, tax, legal, or accounting advice. This article is written for informational purposes only. Like other assets, cryptocurrency is subject to market risk. Please do your own research and trade with caution.