For all enthusiasts in the crypto community, the term DeFi has gained quite a following. Being popular for someday eliminating banks and centralization as a whole in all transactions, to begin with, DeFi has proved to be a sector worthy of attention. Of course, with its strong suits, certain attributes can still be improved.
Currently, DeFi holds a strong value in the crypto world that incorporates various features in its pocket. Some of them include blockchains, Decentralized exchanges (DEXs), stablecoins, assets trading, crypto lending and crypto staking, and Decentralized applications (dApps). DeFi is often associated with being a cost-effective financial service, bringing transparency to trades. It’s certainly one of the hottest crypto trends.
Moreover, it’s a user-centric system that can implement the concept of smart contracts. These contracts run on protocols and integrate several tasks given by a user seamlessly. This allows users to control their assets without any interference from intermediaries or brokerage firms.
Digitization of finance
A major change that DeFi has tagged along with itself is the digitization of financial services. Centralized finance methods provide the global audience a platform without requiring bank accounts. According to reports, a survey conducted in 2017 revealed that about 1.7 billion adults of the world’s population are unbanked. Therefore, people tend to prefer the digitization of commerce. Anyone with just the internet and a device can effortlessly access it and it’s very clear that with DeFi in the picture, a replacement of traditional banking infrastructure is possible by its powerful tool of decentralization. Likewise, DeFi also protects users’ sensitive data from third parties making it secure.
Apart from this, DeFi also comprises other elements that have kept its ship smooth sailing. One of them as I already mentioned is dApps’s and its following characteristics are the reason why DeFi can expand its reach and efficacy:
The Dominance of Crypto over DeFi
The cryptocurrency industry has made major movements with its adaptation of decentralized finance methods. The addition of DeFi has proved to be profitable for the crypto world with crypto enthusiasts and businessmen not relying on governments and other third-parties, especially considering the allegations put on companies’.
The main application of decentralized finance is Ethereum. There are other digital assets such as stablecoins, that aim to be completely out of contact with central banks that have risen to the surface.
Ethereum as of now has complete control over dApps and smart contracts; two essential attributes of Decentralized finance. There are however issues within the Ethereum community due to this since user’s transactions are chained to comply with the governance of Ethereum as a whole. There also have been noticeable exhaustion within the performance of the DeFi network due to the vast number of new projects.
Ethereum 2.0 however, does have the potential to keep the asset’s dominance up and running. The “Phase 0” of Ethereum 2.0 has been released already but until a complete launch is rolled out sooner, there’s not much Ethereum will be left with other than possible declination of its user base.
Growth of Decentralized Finance
Let’s be clear, DeFi currently consists of multiple applications, some of which have tremendously soared in numbers. If you go by statistics alone, decentralized exchange volumes per month boosted from $39.5 million to $45.2 billion in merely two years!
Additionally, it received $27.5 billion locked assets as of the end of January 2021. Looking at the success rate of DeFi, it displays an exponential increase in a rather short amount of time.
A fundamental feature of DeFi which caught everyone’s eye was the appreciable security offered to consumers. Since the risk of payment delays, failures, and frauds related to third-party brokers have been ruled out, DeFi gets favored. Although there are always two sides to a coin, there have been myriad breachings occasionally which causes DeFi to experience a setback and be more prone to risks.
Altogether, judging the reach of DeFi, it certainly has a bright future in terms of replacing conventional methods of transactions. However, the need for advancements along with the system, especially its security is mandatory. This doesn’t, in any way, mean that DeFi’s momentum is going to slow down anytime soon. Nonetheless, if done right, looking at the potential decentralized finance has, it can turn out to be a successful game-changer.