DeFi or Decentralized Finance applications – are created with the help of convergence of cryptography, finance, and software development, and as per the experts operating in the finance segment and experts firmly believe that this is where the future of banking lies.
The primary object of DeFi applications is to recreate traditional financial systems, such as banks and exchanges, with the help of cryptocurrency.
And interestingly, with the help of DeFi lending, customers can also lend out cryptocurrency, just like any other traditional bank does and earn interest as a lender. Today, borrowing and lending are picking up quite fast as among the most common use cases for DeFi applications.
DeFi – Decentralization at the Helm
One of the core tenets of decentralized finance is that it cannot be centered around one entity and it gets well spread across different set of networks. Bitcoin, for instance is basically a ledger running on blockchain technology that is decentralized because the transactions are recorded in databases on various different set of networked devices, many times well spread on different geographical locations.
Decentralization is at the heart of what makes bitcoin so powerful and an innovative tool, paving the way for future-proof banking. So in a decentralized banking scenario – no single party is in charge and hence it becomes nearly impossible for someone to go off the network and change the logs that govern the virtual coin world.
And this is one of the biggest advantages of a DeFi system as well. DeFi is taking this concept to another notch up. In this scenario, decentralized exchanges and lending systems use blockchains like the Ethereum network to provide financial services to their customers.
Decentralized Ecosystem
As DeFi is working in a decentralized ecosystem – it is completely revolutionizing the whole banking scenario as we know it. So everything is decentralized – from the fees the system charges or the products and services it offers to its users.
In such a scenario, a single person or a small group of professionals can drive a decentralized application or set of applications at the starting point, but they step away as their project gains momentum, handing over the controls of the project to the whole decentralized ecosystem and community that uses it. This transition happens in the form of a decentralized autonomous organization (DAO), which carries its own set of rules and regulations deeply intertwined in the form of programming code.
What’s more is that – DeFi applications can also work in peer-to-peer transaction scenarios. For instance – in a traditional stock-trading transaction situation – a set of order on shares might be processed through a series of intermediaries—consisting of a broker and an exchange, while the shares are held in the secured custody of a bank. On the other hand, a DeFi exchange or DEX never works with any kind of intermediaries.
So if you are using a decentralized exchange built on the Ethereum platform to trade crypto tokens – you can seamlessly utilize Nimbus Platform and those assets will be moved in your crypto wallet, with the help of automated programs known as smart contracts.
Big Advantages of DeFi
As the whole concept of DeFi runs on decentralization – it makes DeFi ecosystem very difficult to censor or stamp out as it becomes omnipresent and it cannot be controlled by one entity.
The basic nature of distributing privileges and controls is making DeFi popular and growing its user base quite extensively. And as experts in the BFSI segment confirm – DeFi holds great potential, delivering future-proof banking for its customers.
The seamless concept of DeFi removes intermediaries like custody banks from the financial equation, which are expected to keep assets (tokens) safe. And this means that customers don’t have to worry about a financial institution failing and taking their holdings with it—or even a government coming together to seize money (tokens). This cannot happen in a DeFi scenario.
Owing to their innovative approach to deliver financial services, DeFi startups are accelerating their way into the financial market segment and are making services available to anyone. In such a DeFi market scenario, financial product and services such as financial loan, borrowing or lending or other banking services carry a whole new meaning.
And customers can get a loan or do business with virtual coins without traditional financial credentials such as credit core or identification. This level of financial evolution can extend financial services to a number of unconnected parts of the world and help in global commitments on financial inclusion. And it can also considerably reduce the cost of doing and operating financial business while at the same time making it more secure and less prone to fraud or confiscation.
Conclusion
All these advantages are making DeFi – the thing to watch out as far as the financial market segment is concerned, and this is where the future growth opportunities of financial products and services are going to be.
