One of the main reasons for the creation of cryptocurrencies is dissatisfaction with the existing banking system. Indeed, international payments take quite a long time, and banks often block transactions without explaining the reasons. The main goal of cryptocurrencies is to create an entirely new payment system that will work in a decentralized manner. Blockchain became such a solution — a unique database within which transactions occur. It is worth saying that the blockchain can be used in almost all industries, but today we want to discuss the possibilities of this in the financial sector. So, our primary goal today is to understand what DeFi is and how it is changing the financial world today.
What is DeFi?
It is an entirely new financial technology that uses distributed ledgers like cryptocurrencies. Many people think DeFi exclusively uses crypto, but it can also use fiat currencies.
In fact, it is an excellent alternative to the existing banking system, which considers all the aspects that users in banks do not like. You can perform transactions, store your assets, receive loans, or deposit money here. In general, you can also find all the features that banks have today in DeFi. At the same time, you provide your assets with impeccable security, refuse to pay massive commissions, and receive almost instant financial transfers.
Pros and cons
The use of decentralized finance has many advantages and certain disadvantages. Among the most important benefits are the following:
- It is possible to make transactions all over the world (this applies to individuals and legal entities);
- Increased level of security;
- Anonymity;
- Use of smart contracts;
- Investors can earn income.
A smart contract is one in which money is credited to the client’s account only after they fulfill their conditions. For example, when buying an NFT, the money from your account will be debited automatically as soon as the owner of the NFT sends it to you. In this case, the person can be sure that all the transaction terms will be considered. Another feature of the smart contract is that all transactions are irrevocable.
However, decentralized finance has several disadvantages. Since no one regulates this industry, many attackers work here, so you should use only proven tools.
In addition, many people say that DeFi could be clearer to understand. To actively use this, you need to have a good understanding of how the blockchain works. Only some people can figure it out the first time without outside help.
Why does DeFi matter so much today?
Interest in crypto assets is growing at a tremendous rate. Today, there are a considerable number of crypto enthusiasts who have abandoned their usual work in favor of mining and trading. According to a live survey, about 4% of all Americans have given up office work in favor of the crypto industry. At the same time, we have yet to learn the latest statistics in other regions. They want to be able to use their favorite assets in everyday life and pay for goods or services. The demand for this today is huge, so many companies (both large and small) are starting to accept crypto assets (mainly Bitcoin and Ethereum). Fidelity Digital Assets surveyed business owners about whether they are considering using DeFi in their work, and about 80% answered this question in the affirmative.
Let’s turn to some other data to confirm our hypothesis that DeFi is actively changing the financial world today. In 2019, the DeFi market was valued at around $700 million, but now that figure is heading toward $3.6 billion, which continues to rise.
Practice shows that dapps today compete with centralized banking systems, which is explained by their use of the blockchain. The advantage of this method is that there is no single point of failure. Here you can anonymously send any amount of money around the world with minimal fees (or no fees at all).
De-Fi Development Potential
Many experts believe that DeFi has a huge potential for blockchain and web development. Firstly, many people need access to the global banking system and essential financial services. According to some estimates, their number is approaching 1.7 billion people. However, as long as they have an internet connection, they can securely transact through DeFi.
In addition, this technology is very popular with the best blockchain developers. It is very easy to integrate into various software, which allows you to create new original products. For example, you can create an application that stores financial assets and pays dividends, which they can then spend on various purposes in another application. Many compare it to Lego.
It is worth saying that DeFi appeared relatively recently, so the market is not yet crowded. It provides an opportunity for startups to develop. The creators of various projects can turn on their imagination and offer new, unusual solutions. A prime example is planetex.io. It is a huge decentralized ecosystem that includes the P2E game, DEX crypto, decentralized social network, NFT, and more. This project aims to create the largest decentralized ecosystem that will connect all the possibilities of the blockchain and the crypto industry as a whole. Although this project is under crypto development, it clearly shows in which direction the crypto is moving and what additional opportunities it provides its users.
In the end
Despite the fact that the vast majority of people on the planet still use centralized banks, DeFi creates serious competition for them. Every day more and more people worldwide begin to evaluate the advantages of decentralized payment systems and give them preference. If, in the next few years, the bank owners have yet to come to a conclusion and continue not to respond to changes in the financial world, then we may witness how DeFi can completely replace them.
