Comprehensive Guide for Considering DeFi as a Hype-worthy Platform

DeFi

DeFi is a big buzzword of this year and a recent trend in the blockchain industry. Recently, DeFi created an immense hype in the blockchain domain for some reason. The growth of blockchain has been dramatic for both the blockchain technologies and the need for upcoming new financial systems. DeFi first made its debut in 2019 and gained a vast amount of user growth in the blockchain industry.

Currently, blockchain offers many new innovative solutions for existing decentralized applications. Two of the most exciting and prominent blockchain applications are supply chain and finance. Blockchain will be the gold standard for the supply chain. Also, this would revolutionize the current financial system. We know that the finance industry is a popular and revolutionizing industry that grows every day. But sometimes the traditional finance system seems to be harder. you may know bitcoin and ethereum as crypto coins. But they also act as an immense open-source blockchain-based network. It allows anyone to generate a financial system enabled Dapps without the involvement of any centralized organization

If you are a beginner to this technology, then your mind will be popped with a question: what is DeFi?. And why it created a hype in the blockchain industry. This blog reveals all the answers to your questions. Just keep on reading without any pause!.

Ok peeps, now let us dive into the deeper discussion about DeFi.

What is DeFi?

DeFi is a recent trendy term in the world of fintech, cryptocurrencies, and digital assets. The term “DeFi” is a short form of Decentralized Finance. It is also open finance creating a decentralized system as an alternative source for all existing financial services. DeFi refers to an ecosystem of financial services that are completely developed under blockchain networks. Decentralized finance includes all the digital assets, protocols, Dapps, smart contracts, and more. The main concept behind DeFi is to create a permissionless and transparent financial service ecosystem. It will be available to everyone and anyone can operate without the involvement of the central organization. Thus, DeFi is completely decentralized so users can easily interact through the peer to peer networks or Dapps.

In DeFi, investors can see the status of funds, and also they can track the status. Decentralized finance provides global financial services to all the people across the world. It includes insurance, loans, savings, trading, and the list goes on. DeFi provides accessibility to everyone who has internet facilities on their smartphones, tab, and desktop. As I already mentioned, DeFi is completely enabled by decentralized technologies. But it is built on the ethereum blockchain. The main objective of DeFi is to bring financial services to all unbanked people. also, to sling them into the global financial ecosystem

The intent behind the Decentralized finance ecosystem is to help the 1.7 billion people who lack in the financial services. DeFi has successfully launched an extensive network of incorporated protocols and financial instruments. As for now, over $7 billion worth of value locked in ethereum smart contracts. Experts in the blockchain domain say that DeFi emerges as the most active sector in the blockchain space. Also, considered in various use cases for individuals, developers, and institutions. So ethereum blockchain is the significant choice of all developers for generating DeFi Dapps with given flexibility. Such Dapps remove the need for trust in the absence of centralized authority.

Now let us look at

Major Use Cases of Decentralized Finance (DeFi)

DeFi is commonly applied in many use cases. Now, let us see some of the top-listed use cases of Decentralized finance.

Borrowing and Lending

Decentralized borrowing and lending is the most common use case in the DeFi ecosystem. It allows users to apply for a loan without any bank account. In some DeFi apps, the borrower no need to find the lender. Instead, the smart contract acts as a lender, and interest for the loan is completely calculated based on supply and demand. But in other DeFi apps, it has a fixed rate of interest for loans. So DeFi apps make borrowing and lending very simple and easier. Also, it saves time.

Gaming

The trend of DeFi made many developers generate ideal DeFi protocols directly for different verticals. Currently, ethereum based blockchain games are more popular in the use cases of decentralized finance. Because it has innovative models and completely built in the peer to peer blockchain network. For instance, “Pool together” is a DeFi game. It enables the user to purchase lottery tickets by depositing DAI stable coins.

Asset Management

By using DeFi, you are the only owner for your digital assets and other crypto assets. You can interact with decentralized applications in a very secure manner. Also, you can buy, sell, and transfer your digital currencies by using any popular crypto wallets. Such as MetaMask, paxful, coinbase, and more. For instance, paxful has a crypto wallet. It stores your password, seed phrases, and private keys in an encrypted format. So you can access the wallet at any time.

Insurance

Insurance is basically a contract and represented by the policy. In insurance, an individual receives financial protection against the critical losses from the company. These insurance policies guard against big and small financial losses. Now let us come to DeFi in insurance. As DeFi is still in its noob stage, it still faces risk around smart contract bugs and other breaches. Since many updated new insurance alternatives have arrived to assist users in buying and protecting their holdings.

Identity Management

The DeFi protocols paired with identity systems based on blockchain networks are ways to help many users to access a true economic system. DeFi is also acting like a key that helps to reduce people’s collateralization requirements. Also, helps assess trustworthiness through reputation and financial venture. Instead of income and homeownership. This DeFi provides you data privacy and personal identifying information along with open access. From this, we can clearly understand that anyone with an internet facility can access DeFi Dapps from anywhere. Also, they can have complete control over their data and assets.

Decentralized Crypto Exchanges

Decentralized exchanges allow users to perform peer to peer transactions without any middlemen or intermediate. Here users can trade, purchase, and sell any prominent crypto coins securely. In DEX, assets and funds are not in the hands of the exchange platform. Instead, users can have full control over their funds and other digital assets. So many users moved towards the DEX platform. The increased user base in a decentralized crypto exchange attracted many startups to start a DEX platform using powerful decentralized exchange software. This kind of software helps startups and entrepreneurs to launch a secured DEX platform in a hassle-free manner.

This kind of exchange comes with the integration of high-level security features. So there is no possibility of hacking, scams, cyber-attacks, and other fraudulent activities. Thus, the DeFi ecosystem provides secure space and better operations in decentralized exchange platforms. There are some prominent decentralized exchanges in the DeFi ecosystem. Such as Airswap, Uniswap, Liquality, and the list goes on.

These are the major use cases of Decentralized finance. But also there are some other use cases for DeFi. They are

• Tokenization
• Synthetic assets
• Predictive markets
• Payments
• Trading
• Education
• Wallets
• Analytics
• Stable coins and more

Challenges Faced by Implementing DeFi in Real Life

There are some major challenges that we face when we implement the DeFi concept in real life. Such as

• Scalability
• Lack of privacy
• Cluttered ecosystem
• Lack of identity
• Bad user experience
• Smart contract vulnerability
• High risk of user error
• sometimes leads to poor performance
• Availability of fiat On/Off ramps

If DeFi faces these many challenges, then what will be the future of DeFi?. Yes, there is an answer. So kindly read gently with patience. Read continuously without a pause to know more information about DeFi.

Successful Decentralized Finance (DeFi) Projects of 2020

Come on now, let us look at some outstanding DeFi projects that you should look at the second half of 2020.

Yearn.finance

Yearn finance is the top-most fascinating project. It acts as a decentralized ecosystem that offers lending and borrowing services. Also, this project offers token deposits. Such as USDC, DAI, and USDT. The participation of aggregators in Yearn’s finance selection will be the most profitable lending opportunity. This Yearn.Finance project is completely led by Andre Cronje. They have a native token, named YFI. it is one of the most trending DeFi tokens in recent days.

These YFI tokens are mostly owned by the community. This means that there are no pre-mining, pre-scaling, or team allocations for these YFI tokens. Yearn Finance and YFI token has recently reached about 435% growth within one month. This shows an immense adoption among people and other investors.

Compound

The compound is one of the DeFi based projects. This project acts as an open-source money market protocol. It allows users to borrow digital assets against the collateral which are carried out in the Ethereum blockchain network. This DeFi project gains massive attention through its native token COMP. in recent days, the value of this token has immense growth.

Compound allows anyone to earn compounding interests with rates that are automatically adjusted based on demand and supply of COMP token. Also, the contribution to the liquidity pool is simple in this Compound platform. Currently, this DeFi project has $790M assets locked up and has vast attention among the crowd.

Uniswap

Uniswap is one of the well-known and popular DeFi projects. Also, it is a type of decentralized exchange but it is different from other dex platforms in the marketplace. Here they use liquidity pools instead of an order book system. The users of uniswap are rewarded with a percentage of fees when they provide liquidity during every ethereum transaction. Uniswap has more than $100 million locked assets in its liquidity pools with 100s of new token listings. For new traders, Uniswap offers a learning curve that is completely used to trade digital assets and provide liquidity. Before using Uniswap, one should study the considerations of slippages for better usage and experience of the trading platform.

DIA

DIA is a short form of Decentralized Information Asset. It is an open-source project to drive the open-access data. In the DIA DeFi ecosystem, will be a decentralized DIA token holders with DIA’s governance token acting as an Incentive. This DIA project is completely backed by investors like Outlier Ventures. Also, DIA is the most anticipated DeFi project.

Maker DAO

Maker DAO is the peer to peer platform and it supports decentralized information assets. Also, it is the most used stable which is completely backed by the fiat currency like USD. maker DAO allows anyone to open the vault, create DAI against collateral, and lock the crypto collateral. Currently, Marker DAO holds more than $1B assets with recognition among the users.

Not only these projects, but there are also other popular DeFi projects in 2020. Such as

• Curve finance
• dHedge
• Orion protocol
• Serum
• Aleph.im
• Zerion
• Tottle
• Augur
• Airswap
• Alpha wallet and the list goes on

Advantages of Decentralized Finance (DeFi)

Now, let us look at some key benefits of DeFi over the traditional finance ecosystem.

1. DeFi ecosystem runs on an open-source network and it is a permissionless blockchain network
2. It can increase the market for the use of stable crypto coins.
3. DeFi can make errorless and fast transactions with very high immutability
4. It allows fintech industries to rise one step forward in their financial growth
5. DeFi uses a decentralized network. So borrowing and lending are completely done without the involvement of any central organizations.
6. DeFi is a completely permissionless network. So it does not require any KYC, credit scores, or other details.
7. DeFi is borderless, so anyone can access from anywhere at any time with the internet facility.
8. DeFi is non-custodial in nature, so users can have full control over their all assets and funds.
9. It provides greater accessibility. So anyone can easily utilize the DeFi platform.
10. DeFi provides tightened security to all the assets in its platform. Also, all the DeFi platforms are unhackable
11. DeFi has ultra transparency and is highly programmable.
12. By using DeFi, you can easily make lending, borrowing, and loans in the bank
13. Financial and cross border transactions are faster and easier in a DeFi ecosystem.

What will be the Future of DeFi?

As everything is moving towards a decentralized network. So we can say that DeFi will have a good impact in the future. Many financial services will adopt DeFi for secured and faster transactions. Also, it avoids the intermediate or central authority so it helps many financial service-based industries.

DeFi will make many wonders in blockchain financial services. Binance invested more funds in DeFi projects. Also, listed many DeFi tokens in the trading platform.

Many DeFi projects had not tasted success. But it does not mean that DeFi is not good.

There are some factors that we can expect in the future of the decentralized finance ecosystem. They are

1. Cryptocurrency lending would be very simple
2. DeFi based payment gateways
3. Utilization of DeFi in many fintech companies
4. DeFi in the banking industry
5. Increase in number of DeFi tokens in the marketplace
6. Birth of new DeFi logo projects

If DeFi comes up with the user-friendly and many innovative solutions in financial services. Then it would definitely make many miracles in the future.

Bottom Line

As we discussed all the major things about decentralized finance which would change the financial system. Definitely, DeFi created a huge hype in the blockchain industry. Also, it has become a recent trend in many platforms. I hope this blog helped you to know all the essential things about the DeFi ecosystem. If DeFi faces all the existing challenges and developers fix all the problems. Then obviously it would move the blockchain finance industry into the next level.