Key Highlights
- While decentralization of finance helped to provide more inclusive services to people around the world, there are some areas that require attention
- In recent years, decentralization helped a lot of countries to achieve financial inclusiveness
- But, high decentralization in certain areas could turn wrong
Decentralization has rapidly become a new alternative way to interact with the financial markets. The ideation behind the decentralization was to help ordinary people to have more control over their assets and give them freedom without any fear of censorship. Technologies like blockchain are making this possible while providing transparency and keeping their financial log secured from the outside world.
But decentralization of financial services is unfortunately attracting the attention of the wrongdoers, and for many people, it has become a bad experience. But,
How Decentralization Benefits Ordinary People
While there is still a lack of awareness about decentralized finance, one of the biggest benefits that DeFi provides is that it boosts financial inclusion. According to the report from the World Bank, there are around 1.4 billion unbanked people in the world in 2021. Cryptocurrencies and other digital assets are activating wallet-based services without bank accounts or any third-party involvement from the regulated body.
Apart from this, the way of global remittances has been completely changed, where traditional remittance costs around 5% to 7% via platforms like PayPal, services on decentralized platforms helped them to drop below 1% on decentralized networks.
Apart from this, the countries with high-inflation, such as Venezuela and Argentina, are also getting a lot of benefits from stablecoins and Bitcoin. Citizens of these countries are using stablecoins, Bitcoin, and other cryptocurrencies to preserve their savings.
Also, there are new services available on blockchains like Ethereum, which allows peopled to get loans and earn interest without credit checks. This benefits those excluded from banks.
Apart from this, a decentralized world is also censorship-proof, which means that these networks resist seizure, as seen in Ukraine’s 2022 crypto donations and transfers under restrictions.
How Bitcoin’s Purpose Changed from P2P Cash to Treasury Asset
The main goal for Bitcoin in Satoshi Nakamoto’s 2008 white paper was described as a “peer-to-peer electronic cash system” for direct payments without intermediaries. The whitepaper is early-use focused on everyday transactions.
However, the role of Bitcoin has changed as of now. Financial institutions and companies have been using it as a store of value and a treasury asset. The main reason behind this change is the limited throughput and its high volatility, which do not allow normal people to transact as daily cash.
These change comes with the institutional adoption and launch of exchange-traded funds (ETFs) in 2024, which helped them to bring digital assets to mainstream adoption.
As of now, there are many companies that are holding Bitcoin in their treasury. There are around 145 and 190 firms that control about 5% of the total BTC circulating supply, led by Strategy, MARA Holdings, and Metaplanet.
Decentralization in Real World Assets (RWAs)
RWA tokenization is bringing traditional assets like bonds, real estate, and Treasuries to blockchains. This improves liquidity and provides fractional ownership to users. In 2025-2026, the adoption of tokenized securities could reach a $400 billion market capitalization.
BlackRock’s funds and tokenized Treasuries integrate with DeFi for yield. There are many benefits, which include access to high-value assets, but full decentralization raises issues. Many RWAs use permissioned blockchains or regulatory compliance, which fills the gap of decentralization with legal requirements.
How Much Decentralization is Okay?
Decentralization is not a simple on-off switch; it is a scale. On one side, you have systems like Bitcoin, which achieve security and censorship-resistance by allowing anyone to participate.
However, this maximum decentralization comes with some negative points. It can be slower and handle fewer transactions. Too far in this direction, and a network becomes congested, expensive, slow to upgrade, and others.
On the other end, too less decentralization creates different dangers. It attracts power, which also leads to risks like a major exchange failing or a single entity bending to government pressure.
The main balance depends entirely on the network’s purpose. A payment system needs to be fast and cheap. However, this requirement also raise need of settling for a moderate level of decentralization.
Which Areas Requiring Reform
While decentralization is gradually becoming part of the financial world, there are many areas in blockchain and the decentralized world that need reforms in the form of security and scalability.
However, there are some solutions taking place, including layer-2 networks and sharing. These solutions are expected to boost transactions without centralization.
Apart from this, there are some areas in the governance that require improvement. Currently, decentralized autonomous organizations (DAOs) are facing low participation and are mostly dominated by whales. In order to resolve this issue, there must be better voting and quadratic mechanisms.
Conclusion
While there is no switch to regulate the expansion of the decentralized world, it is important to ensure that this provides value and not ruins the financial stability of the world. DeFi’s current solutions are still in their infancy, and there are many reforms are expected to take place in the upcoming years.
Also Read: Crypto Around the World: Where Taxes Hurt and Where They Don’t
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