Ever since its inception a few years ago, Decentralized Finance has outperformed all predictions and empowered the missing ‘total decentralization’ quotient from the market practices. Subsequently, it has created new opportunities for the investors and institutions alike to earn returns. In simple words, DeFi is an umbrella term. It is a collective sector of a variety of financial applications driven by blockchain. Not to miss, the TVL (Total Value Locked) in DeFi soared from USD 4 to USD 44 Billion. Here’s more about DeFi and its impact.
The biggest advantage offered by the DeFi is that it is banking the unbanked. By using the power of decentralization rendered by blockchain technology, the DeFi applications are trying to democratize banking and finance. This will ensure everyone has equal access to financial services like lending, borrowing, insurance, and more.
Today over 90% of the DeFi apps are powered by Ethereum Blockchain. These applications are bringing the traditional financial services models to the blockchain. However, they are using the smart contract capability of Ethereum to replace the intermediaries and creating a permissionless financial setup.
Transparent Financial world
The traditional financial world is full of scams. These are fabricated either by the platform owners or the intermediaries. Blockchain-powered DeFi enabled building a highly transparent financial world. This is because blockchain is an immutable ledger and even when the ledger is made public no one can mutate the data stored on the blockchain.
As a result, the users of DeFi platforms can enjoy complete transparency and protect themselves from any financial scam or loss. A DeFi development company ensures smart contract audits are in place to protect against hacks.
Uses cases of DeFi in the Financial Services Sector
DeFi has proved that it has the potential to transform the financial markets and the way they operate today. Here are the potential use cases of DeFi:
P2P Lending and Borrowing
The traditional P2P lending sector is facing tremendous challenges. While the intermediaries are adding to the cost of operations, the infrastructure is slowing down the process. DeFi promises these challenges very easily and it has already been overcome to a certain extent. The DeFi applications use smart contracts in place of intermediaries which automate the complete lending process.
As a result, P2P lending becomes a cost-effective and efficient process. Additionally, anyone can become a lender or borrower on such platforms. The lender earns a certain interest rate which is based upon his contribution to the liquidity pool.
Innovative Earning Opportunities
The growing popularity of DeFi lending platforms created innovative earning opportunities for the market participants. Many strategies like yield farming and more are enabling users to maximize their interest returns.
Stablecoins are being extensively used to fuel the DeFi ecosystem. Because of the stable values and features of cryptocurrencies, stablecoins are being used for remittance, lending, and borrowing in the DeFi apps. Thus, a lot of work in DeFi development is being directed toward stablecoin development.
Energy and Data Marketplace
Peer-to-peer energy trading is growing into a big marketplace. Interestingly, it needs a DeFi like infrastructure to facilitate its growth.
Given to stellar growth DeFi exhibited in 2020, it seems 2021 will witnesses a parabolic rise of the DeFi industry.
At Antier Solutions, we are really excited about DeFi’s future. As a DeFi development services company, we are eager to build ground-breaking DeFi solutions. Let us talk over a call to understand how we can help you grow in the DeFi space.