The Rise of DeFi, Potential and Risks

defi

The word was never the same in 2009 when Satoshi Nakamoto revealed his plans for a digital coin that would be based on everything the current currencies lacked.

Bitcoin today has fundamentally changed how financial systems work. Based on an innovative data maintaining technology, Bitcoin offered cheap, economical, swift and highly secure means of transferring value of money from one person to another.

However great it is, Bitcoin was never intended to act as a whole replacement to the current economic and financial setup, just as a digital currency. Today, people all over the world have realized that blockchain, the technology behind all cryptocurrencies, has a lot more potential in day to day finances and money matters.

Among others, Decentralized Finance, or DeFi, as it is known, is a phenomenon in which the power of decentralized networks is leveraged to transform traditional financial products into the distributed data age. The networks create a trustless environment that does not require any middleman such as banks or other financial institutions.

In the last couple of years, DeFi has risen to prominence. The concept started during the heydays of the last crypto rush, where thousands of platform were launched to serve a variety of purposes. One of these services was creating decentralized banks and financial firms. Today, people have the option of obtaining loans, creating savings accounts and trade using DeFi services.

DeFi have become extremely popular due to the advantages offered:

  • Low Entry Barrier: Where people would normally need to have a substantial amount of money or start savings or trading, DeFi platforms offer them the opportunity to access their services for very low amount.
  • Banking the Un-Banked: Modern DeFi systems require only a smartphone and an internet connection to get online. People in remote areas who would lack either the knowledge or documentation required to access financial services or the inability to travel long distances can now be part of the global financial network.
  • Lower Interest and Higher Profits: Without the middleman, people can avail financial services such as loans for a lower interest rate, at the same time the lender being offered a higher take home profit.

DeFi seem to be the best thing that can happen to people in general. However, it is not without its risks. With hundreds of DeFi platforms, a person may not be able to find the right services desired on a platform he or she is registered on. The tokens used have price volatile in their nature, leading to a possibility that the token held, bought or lent will devalue.

In the end, where DeFi has risks, it offers enormous benefits to the public.

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