“DeFi” might sound a little mysterious, but there is no reason to feel overwhelmed. It is just a portmanteau, which comes from compressing two familiar words: “decentralized” and “finance”. Both are at the core of the proposed operations, being currently developed in California’s famed Silicon Valley.
It is true that both words were already used to describe cryptocurrencies for at least a decade. But DeFi is on track to build an interlocking financial system, using blockchain technology to ease lending and further access to financial products across the world. The best analogy for DeFi is probably a bank.
But not only a simple bank, but a network of service providers and lenders. Another reason why the comparison does not exactly work is that there are no middlemen. In fact, the entire operation is based on peer-to-peer. The UK’s Financial Times heralds the arrival of DeFi in 2020, with its disruptive potential gaining steam.
If now is the perfect moment, what does DeFi got to offer?
Well, a potentially fairer, more inclusive and transparent financial system for everyone. Sounds familiar? These terms have recently entered fintech’s wordbook, especially with the growth of crypto platforms like Ethereum. They are set on disrupting the industry by offering products or services with no regard to physical or political borders.
How? By offering open-access technology. The approach is to move away from centralized finance, which has dominated banking since its inception. Rather, we could all become each other’s lenders or financial providers. Yes, you heard it right. Blockchain technology could make these transactions 100% legitimate and secure.
In its concept, DeFi promises to deliver services in any desired currency. This is likely to have far-going implications for the global South, which has already managed to capitalize on cryptocurrencies. In countries where there are no stable banking systems, people are taking to the likes of Bitcoin or Ethereum en masse.
Put it this way. The implications of opening finance to those tech-savvy, young populations in countries like Nigeria or Bangladesh could be huge!
DeFi is the next logical step. Bitcoin has managed to ease and popularize real-time digital transactions worldwide. People are expecting nothing less from the banks now. Traditional banking services will have to show “an adapt or die” attitude, that if they are to survive the next decade.
What is driving the innovation behind is DeFi is the blockchain technology, which is already applied in the world’s second most popular cryptocurrency, Ethereum. It is used to generate smart contracts, prompted by a computer-generated code. It automatically verifies the necessary conditions for both parties to enter the transaction.
This move completely eliminates a need for the middle man. DeFi is set to disrupt the paradigm and deliver a new kind of service, which is likely to shake up existing banking or financial systems. The question is, are you ready for it?
As some of the world’s most talented developers are tweaking DeFi’s security protocol, venture capital is set of making it mainstream. In an analysis piece, published on its official page New York’s NASDAQ reported that the money locked in DeFi has in fact tripled last year, growing to about $700 million in its pilot phase.
Brace yourself, because change is coming.
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