Although the COVID-19 pandemic has affected us quite a lot, it has also helped us find out the loopholes in our system. And, our financial infrastructure is one of them.
However, even during such a ground-shaking event, DeFi, otherwise known as decentralized finance, has managed to grow massively. But how?
Well, that’s because, unlike our traditional financial sector, DeFi isn’t controlled or regulated by anyone. Therefore, it doesn’t really have to depend on a financial intermediary at all.
And, if you’re transferring the same through dedicated crypto exchanges like bitcoin buyer, it’ll be even more secure for you.
So, what do you think? Will DeFi change the world economy in the future? Or, is it all about the hype, like any other blockchain-based technology?
Let’s find out.
Decentralized Finance – What Is It, Really?
Decentralized finance, also known as open finance, is about curating a decentralized and global alternative to every financial service available. It can include savings, loans, insurance, and everything else you can imagine.
According to a report, the core objective of DeFi is to offer financial servicing to 1.7 billion people throughout the whole world.
Usually, the DeFi services tend to operate on a blockchain-based system, like Ethereum. The aim of the same will be to leverage a smart contract to automate financial services.
Advantages Of Decentralized Finance
Whether you believe it or not, decentralized finance can be pretty helpful for anyone, mainly for an organization. Here’s what you need to know about it.
- Anyone with access to the internet and a Crypto wallet can access a DeFi service. So yes, you don’t have to worry about your location, IP address, or anything else. Alongside this, you can also move or trade your money wherever you want. No cap!
- Like any other blockchain technology, a transaction will happen in real-time in a DeFi system as well. Therefore, the whole database will be updated whenever a transaction is made. And, the updates regarding the interest rate will be updated every 60 seconds.
- As mentioned, the data will always stay updated in decentralized finance. And, almost everyone will be able to access the same, whenever possible. This, in turn, can help in keeping everything as transparent as possible, especially regarding transactions.
- In case you’re using a smart contract-based escrow or a non-custodial Cryptocurrency wallet, you can retain the custody of your money. No one else will be able to steal or take it from you in any manner.
- Almost every DeFi protocol available out there is built with some sort of open-source code. Therefore, if you want, you can audit, view, and build the same in any way you want. You can connect the same with some other application to get the most out of it.
Is It Really The Future?
Put it bluntly – Decentralized Finance is the future of how our conventional financial system works. Nonetheless, it still has a lot to grow, especially in the core technological department. For example, a hacker can easily exploit the vulnerability of the smart contract system and steal whatever money is stored there.
Additionally, the collateral requirement of the same is also quite high. Nearly, almost every loan-related DeFi transfer requires around 100% of the loan value. And, this is something not everyone can pay for at the beginning.
Finally, the lack of consumer protection is also there. I mean, yes, there’s no need to follow any rules and regulations as of yet. However, as there’s nothing to protect you, almost anyone can take your money in an illicit manner and call it theirs.
The Bottom Line
Although it’s still speculation at this point, DeFi is going to take over the financial market after a while. Hence, if you’re an enthusiast, it’ll be best to try implementing the same from now on. It’ll definitely help you get more leeway in diminishing the risk points and get the most out of the whole system.
Anyway, now, we’ll be finishing up with this blog. However, if you need any help regarding anything, don’t forget to let us know all about it. We’ll try our best to help you out!
