DeFi: Reshaping the future of Digital Finance

Bitcoin – a payment system in which anyone on the Earth can transfer money to their aligned counterpart – was a major breakthrough in the blockchain revolution until a Telegram chat in 2018 transformed the entire financial system.

The torchbearers of this transformation were a group of software developers and entrepreneurs who desired a new breed of financial services that would be built on blockchain, fully automated, and devoid of any traditional banks.

And that’s when DeFi or Decentralized Financing was conceptualized.

Four years down and DeFi is big business. A crypto wallet user can trade digital assets, get loans, and insurance, among many other things. About $76.9 Billion of collateral is locked up in these services–all within the span of 4 years.

Let’s walk you through the way of DeFi – one where no one is unbanked.

What is DeFi?

DeFi is a brand new monetary system built on public blockchains that allows “trust-less” banking, sidestepping traditional financial middlemen like brokers or banks. Instead of these middlemen, everything is automated into the protocol via smart contracts.

Want to take a loan? You don’t need any bank to hand you the money – directly get a loan from your peers.

You might think, “Hey, but I already do this as my friends send me money via PayPay, or Payoneer.” No, you don’t. You still have a bank account linked to those apps to send/receive funds, so these peer-to-peer payments are still reliant on centralized financial intermediaries to work.

How DeFi works?

The core technologies that enable DeFi are Blockchain and cryptocurrency.

Whenever we make a traditional transaction, the usual flow of operation is – it is recorded in a private ledger of your banking transaction history – which is owned by financial institutions. However, with DeFi, as Blockchain is a decentralized, distributed public ledger, financial transactions are recorded in a computer code.

This ensures that all parties using DeFi applications have an identical copy of the public ledger facilitating the users with anonymity, plus verification of payments and a proof of asset ownership that’s nearly impossible to alter by any fraudulent activity.

Benefits of DeFi

For individuals, the benefits of DeFi include greater security, ability to earn higher income through their crypto holdings, potentially lower costs, and greater availability of services. These benefits are facilitated by the decentralized apps created by various groups.

DeFi apps come with the power of code transparency, that makes it possible for anyone to audit and develop trust because everyone has the opportunity of understanding the contract's functionality.

One of the most popular benefits for crypto investors is the ability to generate income. Crypto staking, for instance, allows the owner of a coin to help support that coin’s ecosystem and earn income. It is attractive when interest rates at your traditional banks have been sitting at rock bottom for years.

Future of Defi

From taking out the middlemen to adhering to the security of the user, DeFi’s future looks bright. In the time to come, there is an optimistic proposition that every financial service we use today under the fiat scheme will be rebuilt in the DeFi and open financial system.

In the long run, the goal of this space should be to build tools and allow users to invest in anything regardless of the amount that they contribute, as blockchain allows easy pooling to collect enough funds you could look for example, at investing in the real estate market with $10. Also, this won’t be possible in traditional markets as it won’t be worth the tome of an intermediary. So, DeFi would get an edge here. For now, here wait and watch as to what the future unfolds for DeFi and for the global financial system.