Decentralized Finance Explained | eBook | AudioBook

The Following is an Excerpt from this Book

DeFi (Decentralized Finance) is the phenomenon that optimizes decentralized networks to convert old financial products into unstable, open protocols that operate without the interference of intermediaries. A website viz., defi.network, set up by a group of DeFi-driven entrepreneurs, built what is termed as Open Community of Decentralized Finance Platforms. The group’s stated core values are openness, interoperability, induction, and accountability. DeFi network participants create their technology as open-source projects to promote the usage of mutual software by developers working on certain companies or projects. The derivative platforms unfolding the values of dY/DX, bZx along with Market Protocol are amongst the participants specified on its website. Coinbase is also classified as a wallet distributor, Dharma as a crypto loan service, CDx as a provider of insurance, and Creator as a stablecoin.
Proponents believe that DeFi has the power to change the lives of unbanked people around the world and make things more accessible to all. If one considers the remittance marketing zone, where immigrant workers send a sizeable volume of their earnings every year to their relatives, he may be surprised to observe the costs for doing this are always ridiculously expensive — cutting into their meager profits. DeFi programs are capable of reducing these charges by more than half. It not only offers an opportunity for an individual to earn more and be more eventually, but it will also help sustain small businesses and industries across the globe.
Loans are other major issues that can be addressed in conjunction with DeFi. Right now, borrowing money can be virtually impossible for the unbanked, mostly because a financial institution lacks credit scores and history. DeFi platforms strive to directly link lenders and borrowers, remove credit reference checks, and allow for collateralization of digital assets. Multiple types of decentralized finance involve stablecoins, a form of digital currency that protects consumers from crypto instability by being attached to other assets like gold or currency. Tokenization refers to real-world assets like art, commodities, and property that can be bought up and traded on the blockchain, while decentralized transactions entail the users to hold on to their resources at all times, reducing the threat of cyberattacks, a menace that many centralized channels are struggling to knock off.
Technology is more accessible, ensuring that a greater percentage of people have access to the resources required to take advantage of DeFi. By the end of the year January 2020, 65% of the world’s inhabitants are now regularly using the internet. Even though there are far more tasks that need to be done when one compares this figure to 2013 because it was only 35%. Besides, smartphones are beginning to become significantly less expensive, indicating they are more inexpensive to the lowest income group on the planet. After all, a recent World Bank survey indicates that 2/3rds of unbanked people already own a smartphone device: the very same technology they have to start exploring DeFi platforms. Public blockchains are also actually starting to get more advanced, and innovative DApps are constantly being released. Many of them are built upon the blockchain of the Ethereum.
Other obstacles lay ahead for the propagation of DeFi. Although it could change millions of people’s lives, it’s an unfortunate reality that DeFi approaches have struggled to amass public recognition. Acceptance in the crypto environment has been slow, so to say. According to a report released back in 2018 (December) by the Cambridge Center for Alternative Finance, there are only 25 million confirmed users of cryptography globally. Particularly in comparison with the 1.7 billion unbanked nationals, it’s obvious that there’s a great deal of work in hand to set everything in order.
It is also worthy of mention that even though DeFi applications continue to attract tens of thousands of users to their networks, there might be a shortage of bandwidth for the public blockchains they are dependent on to meet their needs. Visa says it can handle more than 24,000 operations per second that are significantly eclipsing Bitcoin which is capable of at least 7 TPS. Scalability issues have also been a prolonged barrier in Ethereum’s dealings, with its co-founder, Vitalik Buterin, acknowledging lately that the blockchain is nearly full.
Cryptocurrencies volatility is yet another major issue, and while stablecoins have sought to fix this, the challenge of regulatory compliance continues to expand. Recently, Facebook announced groundbreaking plans to launch a stablecoin named Libra, but American legislators, policymakers, and financial institutions have met the social network with stern resistance. Lawmakers have raised concerns that it would weaken the U.S. dollar and throw the world economy into shambles, while banks worry that it might design a system of shadow banking. Addressing legal hurdles is a critical step towards improving the growth of decentralized finance. A big downside in finding acceptance, however, lies in how numerous DeFi companies operate independently of each other, producing a competitive market ambiance. Besides, to aggravate the issue, there are innumerable government departments that typically have contradictory attitudes towards cryptography and blockchain. In certain countries, digital currencies have been suspended in their entirety along with India threatening to imprison those for 10 years caught dealing in crypto.
Developing connections between DeFi networks, opening new alliances and engaging in discussions with decision-makers, who can support this technology to enter the mainstream, is crucial if cryptography and blockchain have to become a viable substitute to the status quo. Key players in the traditional investment world hold meetings regularly to discuss economic policy issues such as the Davos World Economic Forum, where the assertive smart folks have been seen pushing DeFi forward. The CFC bills somehow are the most exclusive blockchain investors’ optimism in the business. Held on an invitation-driven basis, from January 15–17, during the current year of 2020, only 200 delegates would attend the Crypto Finance Conference in St. Moritz. The justification behind shrinking the size of the event, according to the promoters, was to ensure that those present had a chance to redeem deeper and effective connections. The CFC has also previously hit the headlines, with Reuters claiming that more than a dozen billionaires went to the flashy Swiss ski site to interact with the blockchain businessmen.