DeFi: Shaping the Future of Finance

DEFI - THE FUTURE OF FINANCE?

Everything evolves over its due time. From organisms to humans and our ideas, evolution creates the potential for further development. One such growth has occurred in finance; it's called DeFi. It's a collective term for all the financial applications of blockchain technology. The rise of blockchain technology was primarily dependent on cryptocurrencies. As a result, companies felt the need for decentralised authority, a regulator based on consensus mechanisms. These set of solutions are called Decentralized Finance. This article will explore how decentralised finance works and why it might forever change the banking and financial sector.

What Is DeFi?

DeFi is the activities on the blockchain. These activities are secured through blockchain technology’s immutable and distributed records system. Further, it is due to these activities the blockchain industry could develop. One evidence of popularity for DeFi is the sheer value of money locked into these activities. Defi Pulse estimates that $78 Billion is already locked in DeFi.

DeFi Alternatives to Banking

DeFi has rapidly developed to catch up with retail banking activity. It is because of ordinary people's trust, who have significantly benefitted from cryptocurrencies and DeFi. Moreover, cryptocurrencies and DeFi provide better services than banking.

Funds Transfer:

The average time to transfer funds internationally via banks and similar services takes at least a day. On the other hand, popular crypto apps and platforms take just a few seconds (Ethereum’s 15s) to a maximum of 10 minutes (Bitcoin). The fastest transfer is commonly through blockchains like Polygon, Tron, and Cardano, instantaneously transferring funds.

Borrowing and Lending:

DeFi lending has not become popular; however, it is rapidly emerging. Borrowing and lending occur between two people without a centralised authority. Collateral is required in the form of other cryptocurrencies. An advantage is that anyone can become a lender or borrower anonymously.

Saving:

Cryptocurrency staking is one mechanism that is very similar to savings in banks and other financial institutions. Users deposit their cryptocurrencies and lock them in for a period. At the end of the period, they are rewarded with additional coins as interest. There is great flexibility of investments about time, size of funds, and interest payout frequency available to customers. As a result, the returns are great, and it is often much higher than banking for safer staking mechanisms.

Trading:

Cryptocurrencies are inherently volatile, and this volatility attracts traders. People use fiat currency such as USD, Euro, INR, etc., to buy these cryptocurrencies when they are low and sell them at higher prices. Alternatively, cryptocurrencies are also used to purchase other cryptocurrencies.

Benefits And Concerns

DeFi has a host of benefits. It is decentralised, unlike banks that run on the whims and desires of a few people. But unfortunately, the mistakes of these few people have often made ordinary people bankrupt, like during the 2008 Financial Crisis. DeFi runs on collective consensus. Faster transactions. Anyone can become a lender, trader or investor. Each person with a certain number of coins/tokens can vote for governance proposals. So the responsibility, too, is shared.

Potential for Money Laundering

A high level of technology usage is difficult for ordinary users to adapt to. Inexperienced organizations create loopholes. Lack of proper testing breeds vulnerability.

How Global Vox Addresses These Concerns

Money Laundering: Having closely worked with financial firms, we are well aware of the anti-money laundering standards followed across industries. Technology: Two decades' worth of experience in developing IT and IT managed solutions makes us best suitable for developing technologies that are powerful and yet easy to use. Loopholes: Global Vox solutions are tested rigorously to ensure that there are no loopholes. We understand the potential problems that a tiny loophole can cause.