The traditional financial services have always aimed at two factors at the heart of their functioning: Stability and Security. The stability is explained in terms that both the user and the provider get a negotiable end of the deal with the least financial and functional fluctuations. The security vouches for the fact that there are no losses for the organization and the user to suffer in the short and long term.
However, where these traditional financial services lack is adaptability, flexibility, and ease of work. With a variety of tasks involved, it is often cumbersome for average consumers to deal with back end headaches. Moreover, each service and the provider have their own set of rules and regulations to function. This means that a person in Texas will have different rules altogether to be followed when compared to a person living in Tianjin.
Hence, there has always been a need for a system that universalizes the entire productivity and implementation of global financial services. The blockchain concept brought it to daylight, reckoning that financial transactions need not be scripted. Through cryptocurrency tools, the entire system of exchanges, trading, selling and purchasing, and staking was revolutionized. However, a decentralized network is capable of much more than simple cryptocurrency exchanges. Henceforth, numerous interventions have been made to utilize the full potential.
DeFi (Decentralized Finance)
With the decentralized blockchain network’s capability to support the sophisticated dApps, the entire working model has changed. These dApps (also known as the decentralized apps) work mainly based on smart contracts. The smart contracts are synthesized so that they have pre-set guidelines, and once the parameters are fulfilled, the task is executed itself. The use of such a structure means that there is no further need for a third party to approve or accept the terms of exchange.
Through this, the corridors of power shift from certain greyhounds controlling the entire financial service market to individual users. A person can engage and utilize or provide financial services like an exchange, loan, debits, etc. by simply being a part of the network as a node in the blockchain network hosting the decentralized app. There are multiple methods, such as proof of work or proof of stake, to obtain consensus for the smart contracts.
Advantages of Decentralized Finance
The fact that a need for the implementation of decentralized finance is created also highlights the fact that the previous system had loopholes. How DeFi handles those loopholes is quite interesting too:
- A decentralized blockchain network enables the whole functional features to be free of central authority. This means that there is no chance that a single authority can carry out any modifications or changes to the system or the network regulations.
- Through distributed ledgers, each transaction remains on the network forever. Any changes that need to be made to the network would be in the form of another block. The added block would not change or alter the already existing block in any way. Meanwhile, the original transaction can be traced back and used for the right time.
- The fact that the entire network works based on nodes, all on the same structure, means that it is open to audits. There are no alterations that can be made to cover up lacunas.
- Globalization considerations provide global working flexibility. Hence, a person in one corner of the world can directly enter transactions with someone on the other end.
- Unlike the traditional systems with a plethora of forms and agreements, smart contracts mean that decentralized finance is basically permissionless.
In the recent turn of events, Loi Luu, who happens to be the co-founder of Kyber, highlighted serious growth potential. More than $16 million worth of the KNC tokens have been staked within the first day of the launch declaration. Loi also emphasized on Kyber being the leading DeFi network and crossing $1 Billion in the projected cap. The ripples have not gone unnoticed on the other end of the scale, Stelian Balta, who happens to be the CEO of Hyperchain, also echoed the same emotions. Both stalwarts of the field have echoed the same set of emotions; the decentralized finance is a force to reckon.
Another proof of the unimaginable potential came from the fact that about a dozen DeFi application tokens have recently outgrown traditional crypto tokens. The trend has been observed to unfold in the last six months and seems to be the most sustainable. $2 Billion or more in the form of Ethereum or Bitcoin tokens have been utilized for the investments in Decentralized Finance protocols off late. Some of the DeFi tokens have amassed as much as 600% to 800% growth recently. In the usual scenario, this sort of boom in the DeFi market highlights the fact that users want to go global. Moreover, the users also understand that the decentralized apps and the related blockchain networks guarantee security and recovery efficiency.
The recent announcements of giants like Bancor (BNT) to the initiative of forming liquidity pools backed by stable coins are enormous. These pools would be utilized to fuel the DeFi network functioning, and it is a clear sign that people see growth potential. What unfolds and comes out from this a different thing altogether and would need a length of time to ascertain.