With the start of the era of cryptocurrencies in the financial market space in 2018, came to light the pedagogy of decentralization. The unprecedented excellence of decentralization led to a widescale transitional shift from the traditional centralized mechanism that had been in use for ages. The modern arena runs on technology and people all around the world are running towards products and services that can satiate their needs in the best possible way. It is nearly impossible to find an industry which has not evolved it in synchronization with the modern-day technological advancements and innovations. This urge to infuse technology in every aspect of the industrial domain has paved the way for the introduction of DeFi or Decentralized Finance, which has outshined as one of the hottest topics of discussion in the past few years.
About DeFi and Its Pedagogy
Decentralized Finance hints towards a new variety of finance that is open-source, digital, decentralized, and leveraged by the excellence of blockchain technology. The pedagogy uses smart contracts to render the users with seamless access to decentralized financial products like P2P cryptocurrency lending, dollar-backed stablecoins, investable tokenized assets, etc. DeFi allows its users to enjoy full control over their holdings while indulging in lending, borrowing, making payments, insurance, trading of derivatives, etc.
As the DeFi industry is in its nascent stage at present, a majority of DeFi platforms are running on the leading blockchain network, Ethereum. The DeFi market is still growing, and the future is likely to witness other leading blockchain networks infusing DeFi platforms in their ecosystem. The growing urge for digitalization will trigger the launch of more advanced and innovative decentralized finance solutions, promoting a permissionless, transparent, and secured blockchain-pegged module. Some of the most popular DeFi platforms running presently in the market include the P2P lending platform ETHLend, the dollar-backed stablecoin Dai, the digital asset investing solution Set Protocol, the combination of DeFi and traditional financial services BlockFi.
What Makes DeFi a Need of The Hour?
- Traditional financial services are upgraded with the eminent features of blockchain technology. The system is highly transparent, secure, and allows hassle-free trading operations.
- DeFi withers away the need for a central authority or an intermediary as the transactions are executed, managed, stored, and validated on the blockchain.
- The use of smart contracts avoids the occurrence of any dispute between the two involved parties. The users are the sole controllers of their funds.
- People belonging to low-income regions or classes often find it difficult to access traditional financial services. However, DeFi encourages mass participation and helps people worldwide to come under the umbrella of regulated finance offerings.
- As all the transactions are recorded on the blockchain, no person can alter or manipulate the figures. The data is accessible to thousands of users, which terminate the forced shutdown of the entire network.
Most Promising DeFi DApps
- MakerDAO– The decentralized lending platform, MakerDAO, helps in the creation and issuance of credit in the form of DAI, a stablecoin backed by 1USD. The solution allows the users to stake their ETH holdings in a smart contract. These assets work as collateral and help to create loans for the users in the form of DAI.
- Compound– Compound platform works as a money market fund, which aids users in earning interest by loaning out their capital. The lenders access their capital depending upon their borrowing capacity, which is a pre-programmed mechanism considering token balance, market liquidity, exchange rates, etc.
- Synthetix– In this, the users stake the native currency SNX, which works as collateral to generate debt-based synthetic assets. These assets indicate fiat currencies, virtual currencies, commodities, indices, etc.
- Decentralized Exchanges or DEXs– DEXs provide non-custodial platforms for the exchange of assets, which help the investors to enjoy censorship-resistant trading and an array of security services. Leading DEXs include Kyber Network, AirSwap, Uniswap.
DeFi In News
The past few days have been an ugly nightmare for the DeFi industry as it faced some massive intrusions from malicious attackers. bZx, a renowned margin trading, and lending protocol garnered a lot of negative publicity when nearly $1 Million in profit was dwindled by the attackers causing a major loss to the investors.
Soon after the bZx firm presented the post-mortem report giving the details of the attack, another suspicious attack was executed on the platform leading to loss of a whopping amount of the investors yet again. These unfavorable incidents have posed a threat to the future evolution of decentralized finance offerings as the attacks have shaken the trust of the investors in a big way.
DeFi is proliferating into the financial market at a rapid rate and a good pace. With its remarkable technological excellence infused with the advantages of blockchain technology, DeFi is likely to become the future master player in the global economic scenario. The system is paving the way for an ecosystem that does not rely on a central authority such as banks, insurance firms, or central banks. A more decentralized and reliable network is likely to flourish across the globe with DeFi making success in heaps and bounds.