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DeFi (Decentralized Finance) is the newest fintech player on the scene, and it's gaining a lot of momentum. It is a concept that is gaining a lot of traction among entrepreneurs. The explanation for this is that the concept revolves around finance, financial services, and insurance, and it offers many advantages. Decentralized Financial Services Development aims to change the way we think about money by decentralizing financial functions like lending and borrowing, crypto exchange development, and more and making them universally available. This entails removing intermediaries such as banks and financial institutions and instead relying on automation to conduct direct financial transactions between participants.
It could, however, resemble current financial services solutions based on blockchain technology. So, why are so many people becoming interested in this new technology? Why are sites like Binance and Coinbase creating and offering DeFi services and solutions to their users? Is it just the same product in different packaging, or does the concept reflect something new? Let's discover.
Understanding Decentralized Finance (DeFi) and its Importance for Fintech Development
DeFI is the abbreviation for the term decentralized finance. DeFi is a financial ecosystem development on a shared infrastructure to describe saving, borrowing, lending, trading, and other financial services. We recommend reading our blog post What is DeFi to help you know more about DeFi. Transparency and trust are built and maintained within the system by developing DeFi financial services and products using open-source software on decentralized networks. Since its launch, the device has produced positive results, generating substantial revenue. DeFi contract value has risen significantly from US$ 2.1 million in September 2017 to US$ 6.9 billion in August 2020. Since August 2020, it has increased by US$2.9 billion.
Increasing Significance of DeFI Decentralized Finance?
The main advantage of decentralizing financial services is that it allows everyone in the world to have access to them. Many people in third-world countries already do not have access to conventional financial services.
Inequality in the Financial Services
There are vast populations in countries all over the world that have smartphones and access to the internet but do not have access to financial services such as loans or bank accounts. DeFi aims to solve this problem by establishing a decentralized ecosystem in which users can access a variety of financial services using only a smartphone and an internet connection.
Censorship in the Financial Services Process
Users have no control of their properties in centralized financial structures. Users' access to their own money may be restricted by financial institutions and governments. They frequently impose limits on the amount of money that can be withdrawn at any given time and the number of times that can be done in a given day.
Customers' service charges for withdrawing money from their accounts are also changing.
Financial services in a DeFi system, on the other hand, are not regulated by any central authority or organization. As a result, no one can prevent you from accessing your savings.
Also, Read | Blockchain-based DeFi | Understanding the Decentralized Financial Shift
DeFi's Range of Use Cases
Decentralized Finance has the potential to revolutionize the global financial system because of its revolutionary approaches to finance. Let's look at some of the DeFi applications.
Decentralized Exchange Development (DEXs)
DEXs, or Decentralized Exchanges, are platforms that enable users to conduct automated peer-to-peer transactions. Users can no longer be reliant on third-party exchanges. Furthermore, younger, less experienced users will exchange coins without having to go through any complicated procedures.
Decentralized P2P Borrowing and Lending
Countries all over the world have different laws and regulations in place to make borrowing and lending easier (difficult). Decentralized Finance, on the other hand, gives users universal access to DeFi Lending and Borrowing Platforms, which often only accept cryptocurrency as collateral.
The following are some of the advantages
- Transaction settlements promptly
- Enables the backup of digital assets with physical assets
- No credit checks are needed, and all users have access
- Keeps borrower's and lenders' choices open by allowing them to transact with a wide range of users, democratizing the process
Stablecoins
Stablecoins are cryptocurrencies that are pegged to fiat currencies such as the US dollar, as the name implies. These coins serve as a source of stability. These assets avoid the price fluctuations that characterize cryptocurrencies and are ideal for use as both a medium of trade and a means of storing value. In comparison to conventional cryptocurrencies, which are not usable units of an account due to their volatility, stablecoins are a long-term solution.
Tokenization
Tokenization is a term that describes the process of linking cryptocurrency tokens to real-world properties. Simply put, tokenization produces asset-backed tokens to increase market liquidity. This procedure will hasten the market's acceptance of assets with low liquidity, such as jewelry, real estate, and art.
It also enables us to split these assets into parts, allowing investors to purchase only a portion of the asset rather than the entire asset. This enables low-income earners to invest in goods or services that were previously out of reach due to exorbitant costs.
Also, Read | NFT (Non-Fungible Tokens) | Taking the Crypto Space by Storm
Cryptocurrency Payments
Via its implementations, Decentralized Finance introduces blockchain-based protocols. Users may make instant crypto payments through their crypto wallets, which are often less expensive than other systems. Users also get exclusive discounts by these apps, which encourages them to return to the site.
Decentralized Open Markets
For transactions, open marketplaces remove the need for central authorities. Decentralized Finance allows for a user-centric economy where free trading happens without any central authority's market supremacy. Users can also use blockchain-based smart contracts to exchange non-fungible tokens like trading cards, collectibles, and game products.
Conclusion
Decentralized Finance (DeFi) development is facilitating the foundation for an emerging, secure and transparent financial ecosystem. A financial system that enables universal participation using the potential of blockchain technology. Indeed, various DeFi systems operating in the global financial markets are proving to be key influential disruptors in the space.
Connect with our DeFI development team to find out how DeFi also lays the groundwork for a plethora of future ventures in a genuinely decentralized market that can serve as a democratized forum for people all over the world, particularly in third-world countries.
