Discerning DeFi’s role in digital finance
The term “decentralised finance” (DeFi) has become extremely popular in the digital finance sector in recent times. Financial services that run entirely on blockchain networks rather than through intermediaries, such as banks, are referred to as DeFi. DeFi was first introduced in 2015 through the launch of Ethereum - an open-source blockchain technology that enables digital transactions across the globe. Since then, DeFi has evolved to become the most popular open global financial system. Through DeFi, any user with an internet connection can access financial services, especially transactions in cryptocurrencies, from anywhere in the world.
DeFi has changed the way we bank today and has given autonomy to the users. It allows us to control our crypto assets. We can now save, trade, and invest our digital assets all by ourselves without any interference from a central authority such as a traditional bank. Additionally, since no centralised authorities are involved on DeFi, nobody can refuse us access to any financial services. Thus, it has the potential to financially empower billions of people globally who can’t open a bank account at a traditional financial institute. Ethereum’s DeFi applications also allow developers to build and launch decentralised applications that can run on a distributed computing system. It also enables them to create their own cryptocurrencies. As a result, we now see an uptick in the number of users opting for Ether cryptocurrency.
Growth and the role of DeFi
DeFi systems continue to expand the financial services available to network participants. Traditional banking and financial services aren’t the only services offered by DeFi platforms. As it is self-regulatory, it allows one to keep track of and control one’s own finances. This eliminates the need for third parties, providing consumers total control over their transactions while also letting them to stay anonymous as all transactions are carried out using blockchain Smart Contracts. Due to its 24X7 accessibility, transactions and trading can be done from anywhere at any time. DeFi blurs the line between average customers and affluent individuals or institutions, who have access to a wider range of financial products. A DeFi lending pool is open to anyone who wants to lend money to others. DeFi is a concerted, crowd-sourced attempt to put digital currency to work, providing users with financial incentives to keep crypto rather than speculate on price swings. Beyond online payments, the advantages are numerous. Money transfer is only one part of the existing centralised financial system; however, decentralised finance aims to replace all aspects of the traditional financial system, including exchanges, insurance, and savings accounts.
Future of DeFi
DeFi is poised to become a significant participant in today’s financial landscape. For the past couple of years, DeFi’s vast network has enabled users to swap, trade, deposit, borrow and lend cryptocurrencies to maintain and grow their financial portfolios. DeFi’s true potential however, will be realised when it will move beyond Bitcoin and Ethereum and adopted by lower-liquidity cryptocurrencies.
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