For people who have been following and partaking in the blockchain industry, decentralized finance (DeFi) is nothing new. In fact, this industry is currently on a rampage with over $4 billion USD worth of assets locked in DeFi projects. To date, the DeFi industry is increasing by almost half a billion dollars per week as investors and entrepreneurs find comfort in a financial system that is not controlled by any centralized body like the government or corporations.
What is more interesting is that more and more institutional investors and traditional finance professionals are moving to DeFi to walk away from the outdated centralized financial system. The DeFi we know of today is powered by Etheruem, which provides an open and permissionless system readily available to anyone. Through this interoperability, companies can now scale products by efficiently leveraging other innovations created in the industry.
As the DeFi industry grows, more capital and resources will be allocated in creating innovative DeFi solutions. Some several exciting developments and projects are either launching or already underway. This has made a lot of noise in the DeFi community. We all know that community involvement is the core of DeFi and one of the leading advantages over centralized, traditional financial systems. Here are some of the fintech verticals being disrupted by decentralized finance.
One of the essential innovations in the blockchain industry is decentralized exchanges. Through these exchanges, users can now control their funds, which are stored in external wallets. This lessens the risk of depositing your cryptocurrency into exchanges, leading to losing all your funds in case of a hack.
In the last 30 days, decentralized exchanges have a total trading volume of over US$775 million in transactions. This is more than what the traditional centralized exchanges have been taking in market share. Since more traditional assets are becoming digital, it is safe to assume that these will be available to trade in decentralized exchanges. While regulatory hurdles can delay the process, experts are confident in the power of DeFi and how it will change how we control our assets.
According to an analysis report by Jenco—a decentralized financial service platform that aims to enable and help more retail investors— “Utilizing DeFi is more beneficial since users do not have to follow centralized rules. Direct, peer-to-peer exchanges can occur, given that various values are agreed upon irrespective of the current offline values. Dealers or third-party mediators can also be utilized. However, transactional prices are significantly lower than when using traditional and offline institutions.”
This means that through DeFi, fees and transactions are much lower compared to traditional centralized exchanges. “The utilization of DeFi’s blockchain technology allows global accessibility of various financial services, low transaction prices, and secure exchanges,” says the same report.
Decentralized finance lending comes from the benefits brought by the Ethereum blockchain, which provides transparent and secure protocols to source and secure funds that are incentivized with various crypto rewards. DeFi has identified innovations, including no-collateral loans and P2P lending, that help eliminate intermediaries that operate their business around transaction fees.
Jenco Tech, a platform that offers decentralized lending, understands that one of the drawbacks of traditional centralized lending is that it has intermediaries that make it difficult and more expensive for borrowers to lend money. With decentralized lending, borrowers can now be connected to different lenders and receive the asset they are borrowing in no time without the need for any third-party transaction fees.
DeFi lending is currently seeing a massive increase as more companies are leveraging the industry’s composability, allowing integration and building of applications on top of each other, creating a vast network effect. This open-source concept helps promote and encourage healthy competition, something that the financial services industry needs.
There are several other applications of DeFi in financial services, and it has been welcomed by most people warmly. Apart from the above mentioned, asset management is one of the most popular applications of the DeFi we have now. Overall, we will be seeing more of decentralized finance as it reshapes the financial services we have right now.