In the world of fintech, there is a new trend that has been steadily gaining traction. Decentralized finance, or DeFi for short, is a term used to describe a system where financial services are provided by blockchain technology.
The defi has no future is a common sentiment that many people have. They believe that the cryptocurrency industry will be a bubble and eventually burst. However, this is not true as the cryptocurrency market is still growing at an exponential rate.
Many have questioned if DeFi is the way of the future at this pace.
Yes, DeFi is the way of the future. Fintech’s future is here. There are many reasons why it is preferable to conventional financing.
However, it seems to have a few flaws that prevent it from completing the takeover. This helps to explain why centralized finance (CeFi) continues to rule the globe.
DeFi is still a relatively new concept. But, given enough time, it has much more promise than what it presently offers.
What exactly is DeFi?
Decentralized Finance (DeFi) is a wide financial ecosystem made up of decentralized protocols and blockchain-based apps.
DeFi uses smart contracts to manage financials instead of depending on centralized third-parties like banks. Because no one has complete control of the system, it cannot be tampered with.
DeFi will most likely replace CeFi as the next financial standard since it is fundamentally superior. And the billions of dollars that are now held in conventional finance will ultimately be absorbed by Ethereum. At least, that’s what the majority of us hope for.
How fintech firms evolved into the next generation of banks
Fintech burst onto the scene in the twenty-first century, igniting the interest of venture capitalists and the younger generation alike. The promise of cheaper costs, more user-friendly interfaces, and less bureaucracy attracted everyone.
Fintech has rapidly proliferated in the industry, from mobile banking applications to online payment processors to peer-to-peer lending platforms. Several fintech platforms attempted to outsmart the banks.
They have succeeded to some extent. However, instead of defeating banks, most fintech firms eventually merged with them or became banks themselves.
Okay, now for the fintech-pill. Take it in, assimilate it, and the space will become clear:
Every fintech firm is just a cloaked strategic growth hack with the ultimate aim of becoming a bank. Acorns, Robinhood, Stripe, Coinbase, Affirm Bank, bank, bank, bank, bank, bank, bank, bank, bank, bank, bank, bank, bank, bank
December 14, 2018 — John Backus (@backus)
“Every fintech firm is simply a disguised strategic growth hack where the actual objective is to become a bank,” stated John Backus of the Bloom Protocol and Cognito.
Do you recall when Binance didn’t need you to provide your KYC information? Yes, there was. They did, however, need to get a banking license, as would any other fintech firm that became large enough.
And there may be nothing improper with getting such a permit. However, they are subject to the same regulatory restrictions and red tape that prevent banks from offering open financial goods and services to the rest of the globe.
Is it really possible to call fintech platforms creative if they just transform into digital banks? Is it still possible to talk about a fintech revolution?
That is a point of contention.
Why DeFi is the Financial Future
DeFi seems to be the missing component needed to transform the financial services industry. DeFi systems are much superior than CeFi platforms in terms of features.
And it’s for this reason that many people believe DeFi is the future of fintech. Also, DeFi platforms will ultimately supplant financial firms.
Instead of PayPal, Stripe, and other similar services, we’ll use Uniswap, Curve, and other similar services.
Because the majority of fintech firms are centralized, authorities have targets to pursue.
DeFi, on the other hand, is decentralized and permissionless. There is no one in control. As a result, when the financial app does not go as planned, regulators and other regulating organizations have no one to blame.
And this opens up a whole new world of possibilities. Developers may innovate freely without fear of being imprisoned since government authorities are unable to control transactions.
Open financial apps may thrive without the barrier of authorities, enabling everyone in the globe to freely access financial goods and services.
Consider a goat farmer in Bangladesh who previously had access to conventional financial products due to a lack of identification documents. This is the predicament of the majority of people in third-world nations. They are unable to save money, much alone invest in the stock market.
They may, however, use DeFi to purchase ETH with cash and engage in yield farming schemes and other services with only a smartphone. And cellphones are becoming more affordable and accessible than any bank account will ever be.
Because the majority of essential user information is accessible to the public, blockchain-based apps are naturally transparent. Using a blockchain explorer like Etherscan, you can quickly verify any transaction details.
This allows customers to shop for the finest DeFi goods and services without having to leave the app. They may also be able to spot dangers, such as when a stablecoin platform is significantly undercollateralized. When working with conventional money, this is very difficult to do.
Problems with DeFi right now
Of course, as one would expect from a new market, DeFi has flaws of its own.
The majority of individuals are just in DeFi because of the profits.
The majority of people who use DeFi nowadays are nearsighted.
Who could blame them, after all? The very high profits individuals are making from these sites is why DeFi is so popular right now.
Balancer, yEarn, Compound, and other yield farming protocols have garnered hundreds of thousands of users. Some of the interest rates may be as high as 100%, outperforming any CeFi product now on the market.
What worries visionaries and developers is that they are well aware that this will not endure.
Some individuals say, “Let’s build a global financial infrastructure that’s simple to use, and utilize mechanism design and smart contracts to develop new kinds of social organization!” Other people: YAY 135 percent yield farming!!!1!
There’s a tense situation here that we should discuss further.
July 1, 2020 — vitalik.eth (@VitalikButerin)
For the time being, excessively high interest rates remain in place, but they will never be substantially higher than conventional financing. That would be against economic law.
Unfortunately, as Vitalik points out, the “boring” aspects of DeFi are the ones that provide the greatest value. It’s already a huge thing that anybody in the world may access a tokenized US currency with an interest rate that tracks inflation.
That is something we already have. All we have to do now is become better.
Ethereum must grow in size.
DeFi is hampered by Ethereum scalability since gas costs are expensive when the network gets too busy. Ethereum now has a transaction rate of about 14 transactions per second (tps). Gas costs may rise with hundreds of coins and dapps operating on it.
As the popularity of DeFi grew, gas costs began to climb again lately. This must be handled as soon as possible.
Ethereum 2.0 is the most promising scaling option since it would enable the network to grow to 100,000 transactions per second, thus solving all scaling problems. The issue is that it won’t be ready for another couple of years.
Fortunately, there is a short-term remedy in the shape of off-chain alternatives. Ethereum can grow to 1,000-3,000 tps because to protocols like ZK and Optimistic Rollups. They’ve already arrived.
The issue today is that not all DeFi applications, or even the majority of apps in general, have implemented it. However, others have previously done so, such as Uniswap.
Optimistic Rollup is a revolutionary L2 solution for Ethereum that scales interoperable, fully generic Solidity smart contracts.
Unipig was created to showcase Optimistic Rollup’s potential as well as its significant UX advantages.
DeFi has the ability to scale and will do so.
Uniswap Protocol (@UniswapProtocol) (@UniswapProtocol) (@UniswapProtocol) (@UniswapProtocol) (@UniswapPro
The more off-chain protocols are used by Dapps, the less crowded Ethereum gets. And a less congested network translates to lower gas prices. Please contribute to the adoption of Optimistic Rollups by encouraging additional Dapps to do so.
DeFi may have certain challenges, but none of them are significant impediments to realizing its full potential. As gas prices fall, individuals will be able to join in DeFi for less money. This increases their earnings and encourages them to remain.
Users may be attracted to DeFi because of the yields, but once they discover how much better it is than CeFi, they are likely to remain.
Although the high returns will not continue indefinitely, the true value of DeFi, which is an open financial environment, will endure. That’s all that counts.
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As if Loading…
DeFi is a new type of decentralized financial system that has been gaining traction in recent years. It’s been described as the future by many people, but what exactly is it? Reference: what is defi.
Frequently Asked Questions
Why is DeFi the future of finance?
DeFi is the future of finance because it can be used to make payments and send money without any third party interference.
Why is DeFi the future?
Deflationary currency is a form of money that has no intrinsic value, but can be used as a medium of exchange.
Does FinTech have a future?
Yes, I believe that FinTech has a bright future.
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