Blockchain technology is one of the fast-growing technologies. It is mostly used for creating crypto exchanges and tokens. Also, it can be used for upcoming new financial systems. In recent times, DeFi is a prominent term and one of the latest trends in the blockchain industry. If you are a crypto enthusiast, then you definitely come across the term ‘Defi’. DeFi created massive hype in the blockchain industry among investors and startups.
Blockchain technology helps to provide many innovative solutions for existing decentralized applications. Currently, the most prominent blockchain applications in the market are supply chain and finance. As we know that the finance industry is a prominent and fast-growing industry. It is expected that the finance industry will reach more than $26.5 trillion by 2022. You might know bitcoin and ethereum as digital currencies. But they also act as an open-source blockchain network. It allows anyone to develop a financial system that enables Decentralized applications without the involvement of any centralization.
Many experts in the blockchain space predict that Defi will change the financial world in 2021. Now, you might ask how Defi can change this financial world?. This article will clear all your doubts regarding Defi. Thus, let us begin with…
What is Defi?
DeFi was first found in 2019 and gained a great number of users in the blockchain industry. Defi stands for Decentralized finance which refers to a peer-to-peer finance system enabled by a decentralized ecosystem built on the Ethereum blockchain. It has an expansive network of integrated protocols & financial instruments. Now, over $13 billion worth of value was locked in the Ethereum smart contracts. With a wide range of use cases, Defi is recognized as one of the most active sectors in the blockchain space.
Our traditional financial system will be running on a centralized infrastructure. Also, it will be managed by multiple resources. Such as central authorities, institutions, and intermediaries. But the Defi ecosystem is completely powered by a complex code that is running on the decentralized infrastructure of the Ethereum blockchain. DeFi helps the developers to launch financial protocols and platforms.
The main motive behind the Defi is to help people who lack financial services. As of now, ethereum is the popular blockchain platform that helps people to develop products and run them successfully. Thus, the ethereum blockchain is the major choice of all developers for developing defi-based decentralized applications. It helps to neglect the presence of centralized authority.
Popular Use Cases of Defi that Impacts the Financial World
Here I list the ideal use cases of Decentralized finance that might change the financial world in 2021.
- Borrowing and Lending
Borrowing and lending is the most prominent and common use case in the DeFi. It helps users to apply for a loan without any official bank account. In some DeFi-based applications, there is no need of finding a lender. Instead, here the smart contract acts as a lender. Also, the interest for the loan is completely calculated on supply and demand. Thus, DeFi-based applications make borrowing and lending simple and easier for all users.
- Asset Management
By using this decentralized finance ecosystem, you can have ownership of your digital assets. Also, you can interact with peer to peer applications securely and you can also trade your digital currencies by using any cryptocurrency wallets. Like MetaMask, paxful, coinbase, and the list goes on. For example, paxful is a top-notch p2p crypto exchange and has its own crypto wallet in the play store. This crypto wallet stores users’ passcode, seed phrases, and private keys in an encrypted format. Thus, users can access the paxful crypto wallet at any time from anywhere.
- Decentralized Crypto Exchanges
A decentralized exchange is a peer to peer trading platform and allows users to perform p2p crypto transactions without any intermediate. In DEX, funds are not in the hands of the owner of the exchange. Thus, users can have full control over their digital assets and other required funds. As of now, there is an upsurge in the user base of many decentralized crypto exchanges. This attracted many budding startups and entrepreneurs to start a decentralized crypto exchange by using the superfine decentralized exchange software. This type of software helps to launch a function-rich decentralized exchange platform without any hassle.
A decentralized exchange platform comes with high-level security features. Thus, it helps to avoid the possibility of hacking, cyber-attacks, and other malware activities. That’s why the DeFi ecosystem provides secure space and better operations in DEX platforms. Some decentralized exchanges are popular in the DeFi ecosystem. Like Airswap, Uniswap, and more.
- Identity Management
The DeFi protocols tied up with identity systems will help many users to access a true economic system. It acts like a key that helps to reduce people’s collateralization requirements. Instead of income and homeownership, it helps to access trustworthiness through reputation and financial ventures. It also offers you data privacy and identity information along with open access. From this, we can say that any user with the internet can access DeFi-based applications from anywhere.
Insurance is kind of a contract and a policy where an individual receives financial protection against some losses from the company. These insurance policies will safeguard against all financial losses. When it comes to Defi insurance, it still faces some significant risks around smart contract bugs and other breaches. But in the upcoming years, we can expect that defi insurance will be available for everyone without any risks and issues.
The hype and recent trend of DeFi made many blockchain developers create DeFi protocols for diverse verticals. As of now, ethereum based blockchain games are becoming more prominent in the Defi ecosystem. These Defi-based games have more creative models and are completely built in the decentralized(p2p) blockchain network. For example, Pool together is a famous DeFi-based game in the market. It allows the user to buy premium lottery tickets by depositing DAI stable coins.
Apart from this, there are also some other use cases for DeFi which help to change the financial world. They are:
- Asset Tokenization
- Synthetic assets
- Predictive markets
- Crypto wallet development
- Stable coins and more
Hidden Benefits of Decentralized Finance (Defi)
List of some crucial key benefits of Defi in the blockchain industry.
- DeFi is an open-source and permissionless blockchain network.
- DeFi can make cheap, fast, and flawless transactions with high immutability.
- DeFi uses a peer to peer blockchain network. Thus, borrowing & lending are entirely done without any central authority.
- It is a permissionless network, so defi does not require any KYC, credit scores, or other essential details.
- DeFi is borderless, so any user can access this platform from anywhere at any time easily with internet access.
- DeFi is non-custodial, thus users can have full control over their digital assets.
- It offers higher accessibility, so anyone can utilize the DeFi platform in a hassle-free manner.
- DeFi platforms are completely built by a high-level security mechanism, so this kind of platforms are unhackable.
- DeFi-based platforms have high transparency and also they are highly programmable.
- Defi platform can facilitate quick and easy financial & cross border transactions securely.
By considering these benefits we can predict that Defi-based platforms might be the future of the financial world.
I hope this article gave you some essential factors about how decentralized finance would change the financial world. Now, you might ask: does DeFi is a hype-worthy platform?. My answer will be a ‘big yes’ because it has many hidden beneficial factors and helped to create many decentralized platforms in the blockchain industry. Many experts in the blockchain space say that it might be the future of the blockchain industry. If DeFi solves all the existing challenges and bugs, then definitely it would take the blockchain finance industry to the next phase.