Why DeFi Matter?

Why DeFi Matters?

Grow the Empire

DeFi has generated a lot of hype, buzz, scepticism, confusion, and excitement at the same time. Decentralized finance, or “DeFi,” is the ecosystem of blockchain-enabled goods and services that substitute freely available, autonomous, and transparent software for traditional financial intermediaries. 

The features and advantages of DeFi should be described since business owners, executives from corporations, decision-makers, and institutions of all sizes are all very interested in this trend.

But first, what made it all possible? 

DeFi builds on the three significant blockchain innovation waves that have emerged over the past ten years. Each of these waves was initially met with great criticism but has since gained acceptance and adoption. 

The distributed ledger, also known as the blockchain, which was created to enable peer-to-peer transfers of a non-sovereign digital asset defined the first era and was made possible by the invention of Bitcoin (invented in 2009). In contrast to Bitcoin, Ethereum’s native programming language (Solidity) can be used to create any imaginable application, turning it into a globally accessible supercomputer.

Ethereum also drew from the same underlying distributed, censorship-resistant architecture. The third wave was the 2017 ICO boom, which funded a variety of projects and is beginning to deliver on its promise of a decentralized financial ecosystem in some cases. The fourth wave, DeFi, expands as a continuation of these innovations.

What is the big deal about DeFi?

DeFi protocols adhere to important standards, especially transparency and permissionless.  DeFi applications can be used by anyone in the world with an internet connection, regardless of their ethnicity, gender, age, level of wealth, or political affiliation. This is why the term “permissionless” speaks to both end users and developers. Additionally, since no centralized authority has the authority to revoke access in the future, any group of developers can build on these platforms with confidence.

The term “transparent” refers to the inherently auditable nature of DeFi platforms: Since the software is always open source or source-available, all of its underlying code is constantly available for review and all of its associated capital is available for audit. Due to the fact that every transaction is recorded on a blockchain, it is simple to review specific transactions or create businesses that explore the data for investment (or even investigative) purposes.

Why DeFi?

  1. Reduces switching costs, lowers entry barriers, and adds flexibility 
  2. Clear accounting and thorough risk analysis. 
  3. It balances incentives and resolves the principal-agent dilemma. 
  4. Robustness, improved market efficiency, and modern infrastructure 
  5. Unified markets and global access. 
  6. Real-time data. 
  7. Reduction of compliance costs and counterparty/credit risk.

 

Final Talk

DeFi seeks to establish a free, open, and permissionless financial market. DeFi has undergone significant development and investment, so it’s crucial for every sector in our daily life. 

It is crucial to understand decentralized finance and to be ready to interact with and rely on these applications as the space continues to develop and grow considering the benefits it provides.

Read More: What is a DeFi Token?