Litecoin (CCC:LTC-USD) is the 15th largest cryptocurrency, according to Coinmarketcap.com, and is one of the first blockchain currencies, after Bitcoin (CCC:BTC-USD). However, its also been put in many DeFi (decentralized finance) contracts. These allow its holders earn higher than normal interest rates paid in Litecoin.
Source: Wit Olszewski / Shutterstock.com
State regulators last week sent Block Fi, a DeFi provider, a cease and desist letter for offering interest paid in Litecoin and other cryptocurrencies. New Jersey regulators say the company is offering unregistered securities. They said that the Block Fi accounts offering interest paid in Litecoin, Bitcoin and other cryptos of up to 7.5% were not registered as securities in their state.
In fact, at the end of June, the Financial Times reported that financial regulators have started paying more attention to DeFi. They referred to interest from the Commodities Futures Trading Commission and the Securities and Exchange Commission.
DEFi Growth Is Spurring Cryptos
The rapid growth of DeFi has led regulators to take a second look at these blockchain productst offering interest in Litecoin and other cryptocurrencies. Simply put, they don’t know how to regulate them, as many regulators do not recognize Litecoin and other cryptos as currencies.
The Financial Times has been following developments with DeFi very closely. They reported many Silicon Valley venture capital companies are pouring money into these companies. For example, one company, Uniswap, which allows people to trade cryptos directly with each other without using an exchange, received $12.8 million from VCs.
Many other DeFi companies are using Litecoin and other cryptos to establish software blockchain products that get rid of intermediaries. They are moving into several industries like lending, banking, insurance, and trading.
Yield Farming With LTC and ETH Tokens
Some products are actually called “yield farming.” They act as bridges from one crypto to another, especially to Ethereum (CCC:ETH-USD), where a good portion of the DeFi contracts reside. For example, in March a wallet called Eidoo was offered to Litecoin holders who want to access Ethereum-based DeFi contracts. The Eidoo wallet allows Litecoin owners to yield farm or choose among the many different types of Ethereum-based DeFi products.
The Kyber Network is another cryptocurrency exchange where Litecoin holders can access Ethereum-based DeFi contracts.
The bottom line is that these DeFi software contracts help spur the growth and adoption of Litecoin and other cryptocurrencies. It does this by pegging a new token (pLTC) on a one-to-one basis with the number of LTC tokens that a user holds with the exchange. The pLTC tokens can be used to earn Ethereum-based interest from DeFi contracts.
Where This Leaves Litecoin Holders
Litecoin is widely seen as the original altcoin, a major alternative to Bitcoin. As a result, it is also a target of many DeFi software contracts due to its popularity.
It’s likely that this could be one reason why Litecoin has been on the mend lately. The crypto peaked on May 8 at $386.45 and later fell, reaching a trough of $107.19 on July 19.
In fact, as of Aug. 16, Litecoin had rebounded to $180.23, representing a gain of 68.1% from its trough. As of Dec. 31, when Litecoin closed at $126.23, the crypto is up 42.8% year-to-date.
That is better performance than most stocks, bonds and mutual funds this year.
It’s too bad, then, that regulators want to scrutinize Litecoin Defi contracts. It’s too bad that blockchain contracts don’t seem to meet regulators’ rules and regulations. Nevertheless, one thing is for sure. DeFi has helped holders of Litecoin tokens to earn more money. They have also increased the appeal of holding Litecoin and other cryptos.
On the date of publication, Mark R. Hake owns a long position in Bitcoin and Ethereum but did not own any other security mentioned in the article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Mark Hake writes about personal finance on mrhake.medium.com and runs the Total Yield Value Guide which you can review here.