Decentralized finance, also known as DeFi, has become one of the most crucial developments in the global economy. This fascinating phenomenon could be a vital disruptor for many years to come. The trend aims to disrupt traditional finance by removing the middlemen, like the major banks and conventional financial institutions. In addition, DeFi can facilitate an environment of starting, executing, and completing transactions between consumers.
DeFi celebrates a peer-to-peer philosophy and offers advanced smart contracts on the blockchain network. Many market participants are excited over the possibility of democratizing finance, potentially dismantling the pillars of centralized entities and erecting a DeFi company in its place. It is estimated that the DeFi industry is worth approximately $77 billion. While this figure may adjust downward throughout the massive cryptocurrency correction, it is still a promising sign of rapid growth.
DeFi has attracted multiple parties, from armchair folks to billionaire investors. The sector is brimming with long-term potential, appealing to many financially savvy individuals. But what exactly makes DeFi so popular? Let’s learn more about why DeFi is a lucrative industry:
Eliminates Banking Fees
One of the primary benefits of DeFi is that it eliminates fees charged by banks and other financial organisations to use their services. We live in an era where banking fees are regularly rising, which will add up to a lifetime of expenses. More and more financially-savvy consumers are attempting to find other options that save them a few dollars. The best alternative is DeFi, which can help accomplish this feat and perhaps even earn a few dollars more.
When customers use traditional banking services, they usually receive a notice that a deposit or a transaction could take one to three business days. In today’s fast-paced economy, this response time is too long. We live in a fast-paced economy with rapidly changing financial trends. Waiting days for a transaction to complete may make you miss a crucial earning opportunity.
DeFi ditches the sluggish pace and embraces the speed. In many instances, transferring funds can complete in minutes or even seconds. It is an impressive feat, particularly in a hyper-connected global marketplace.
DeFi: Democracy At Its Finest
DeFi removes many bureaucratic restrictions from financial transactions. In the world of DeFi, anyone with an internet connection can utilize the infrastructure to their benefit without the rigorous paperwork and arduous approval process. This accessibility is excellent for both sides of every transaction. Borrowers can avoid paying excessive interest rates and egregious service fees.
Some may wonder about the safety and security of the lending model. Fortunately, smart contracts are vital in this trade since they are built into the blockchain. Plus, many DeFi companies are building new infrastructure and innovating technologies to avoid fraud and other illicit activities.
P2P lending had much promise even before cryptocurrencies became ubiquitous. Today, DeFi and crypto have facilitated its advancement. Individuals can act as creditors and enjoy a modest yield on funds that are lent out. Although you do not need to be a business to enjoy lending, a DeFi company can also partake in this using smart contract logic.
Connection to Cryptocurrencies
DeFi and cryptocurrency are connected, although the technology is developing and improving. Still, its connection to cryptocurrencies is a crucial benefit for the millions of people entrenched in this financial ecosystem. Many want to ditch conventional fiat currencies (dollars, loonies, and euros) and put their digital holdings to use, such as Cardano, Uniswap, or Ethereum. DeFi provides an ideal platform to fulfill this growing demand.
There is a new saying in the DeFi and crypto worlds: The blockchain doesn’t lie. In this new sector, there is a term called total value locked (TVL). This represents the total sum of all cryptocurrencies, staked, loaned, and deposited in a pool. It also spotlights the total sum of virtual tokens used for financial activities.
A Maturing Industry
DeFi is still in its infancy period. It will experience growing pains, hiccups, and many hurdles. Still, the aftermath of the Great Recession revealed how vulnerable the banking system is in the United States and throughout the world. The financial crisis made many people doubt a system that was supposed to be safe and sound more than a decade ago. DeFi became a legitimate alternative that can innovate besides centralized finance.
DeFi still has many problems to resolve, such as fraud, which even impacted billionaire Mark Cuban. But this is part of the process: learning from mistakes and figuring out how to improve. DeFi will mature and become a force to be reckoned with in the future.
Will DeFi eviscerate the JPMorgan Chase, Morgan Stanley, and Wells Fargo institutions of the world? That prospect is unlikely. Nonetheless, it will offer a healthy dose of competition to an international and multi-trillion-dollar industry! And every industry needs this invigorating dynamic.