Decentralized finance, or DeFi, is currently one of the hottest trends in all of cryptocurrency. At its core, the goal is to make financial services more accessible. In fact, it may be the trend the world needs to unbank the banked on a broad scale.
The Purpose of DeFi
Contrary to what some people may believe, over 1.6 billion people still can’t access basic financial services. That is an astonishing number, as it represents roughly 20% of the world’s population. Providing these services to those people is a big challenge. Banks and other service providers are anything but keen on exploring this spectrum, as there isn’t sufficient profit to be made.
With the help of innovative technologies, such as blockchain and cryptocurrency, accessing financial services becomes easier. In fact, it has the potential to bring such services and products to anyone on the planet. More importantly, it will be done without requiring permission or access to “traditional” finance.
This has become apparent with the help of DeFi. It is a way of accessing basic services – payments, lending, borrowing, providing liquidity – without dealing with intermediaries. Although the industry is still in the infancy, there is a lot of money pouring into DeFi already.
Powering all of these features, services, and products are smart contracts. Multiple blockchains possess the technology to power such contracts, with Ethereum being the most outspoken one. Services can also be found on Binance Smart Chain, EOS, TRON, and so forth.
The Future is Already Here
To most people, it may seem futuristic to think of decentralized finance as a real thing. Accessing loans without a bank, for example, must seem like a foreign concept. In reality, it is already possible. Anyone can borrow or lend money to anyone else in the world where DeFi is concerned.
One big difference is how DeFi solutions can effectively do something banks can’t: provide a decent interest rate on one’s existing wealth. All over the world, negative interest rates have become the new normal. It forces consumers to look into alternative investments, including gold, silver, platinum, and Bitcoin.
Anyone extending a loan through DeFi projects can expect a decent return. There are costs associated with borrowing money, even in this digital space. For lenders, there will be an interest rate that is several times higher than what a savings account can provide.
Conclusion: Is DeFi for Everyone?
This answer is difficult to answer. While DeFi and its services are permissionless and global, they may not cater to everyone right away. It is difficult to step away from traditional finance, despite all of its shortcomings. There is a lot one simply cannot do without a bank, even in this modern day and age.
There is also the aspect of little to no interoperability. Decentralized finance solutions on Ethereum won’t work with Bitcoin, for example. That is a very big problem for cryptocurrency users and might hinder broader adoption as well. Slowly but surely, things will begin to improve.
In terms of catering to the masses, there are a lot of advantages to explore. Not dealing with middlemen, banks, or people who determine if one “deserves” access to the system, is a welcome change. Currently, DeFi requires owning cryptocurrency of some sort to enter. That is a small hurdle, but one that can be overcome relatively easily.