With more than $4 billion in assets locked up in Defi projects, this is a global alternative for all financial services like savings, loans, trading, insurance, etc., are more accessible to anyone through smart contract blockchains like Ethereum which offers an open and permissionless system that is easily available to everyone.
“Smart contracts” are programs that run on the blockchain that can execute automatically when certain conditions are met. These smart contracts enable developers to build more sophisticated functionality than simply sending and receiving cryptocurrency. These programs are called decentralized apps, or dapps.
DeFi industry is currently growing by nearly half a billion dollars per week
Functions of DeFi
- Creates monetary banking services (e.g., issuance of stablecoins)
- DeFi provides peer-to-peer or pooled lending and borrowing platforms for the users
- Enables advanced financial instruments such as DEX, tokenization platforms, derivatives and prediction markets
Benefits of Decentralized finance compared to traditional financial services
- Deploying a financial application or product becomes less complex and secure by use of smart contracts
- As many dApps are being developed on top of the Ethereum blockchain, reduce operational costs and lower entry barriers
- Removes needs of intermediaries as- Once the smart contract is deployed to the blockchain, DeFi dapps can run themselves with little to no human intervention
- Transparent codes
- Flexible user experience
- AsDeFi applications can be built or composed by combining other DeFi products like Lego pieces they are interoperatable
Is 2020 a DeFi era?
When Crypto companies are increasing their capabilities to facilitate better trading, products, and services, decentralized exchanges will be easier for the average user. New financial products and instruments are continually being developed that will drive further liquidity and potential profits for investors. Speculation will continue to grow in 2020 as crypto assets evolve with the addition of newer investing categories like staking, information markets, and yet to be conceived ideas will further create value for individuals, entities, and investors.
Thus, interoperable, programmable, and composable nature of the open financial stack built on Ethereum provides the foundation for a new financial economy. While 2019 saw significant strides forward in the development of decentralized finance, 2020 looks set to make a giant leap!
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