Recent decentralized finance developments offer consumers tremendous value and extraordinary capabilities through efficient, automation-driven, blockchain-based financial products and services that are redefining a whole new paradigm of crypto-economy.
What is DeFi (decentralized Finance)?
Decentralized Finance (DeFi) is an umbrella term for a diverse range of financial products and services built on top of decentralized ledger technology such as Ethereum or Solana – accessible to any individual or institution with a computing device and internet connection.
Know how DeFi is transforming traditional finance and capital markets
Decentralized finance offers a sneak peek into potential future applications of blockchain in Capital Markets and across the finance industry. Gradual Decentralized finance developments will help individuals and institutions take advantage of the limitless potential of defi applications.
- Decentralized finance developments enable customers to invest in the markets anytime because the markets are always open – every day of the year.
- Employing Blockchain in Capital Markets in the form of decentralized finance application help democratise accessibility – to a reliable financial infrastructure.
- With DeFi apps, there are no intermediaries or centralized authorities such as a bank or financial institution who hold power to restrict trades or hide transactions or block payments or deny access to any feature or functionality.
- Using Blockchain in Capital Markets helps make slow financial processes prompt. DeFi eliminates the risk of frequent human error by automating transactions.
- Additionally, with Defi, transactions and financial operations are conducted by code that the user can refer to, inspect, and scrutinise – because the code is open-sourced.
Real-world applications of DeFi
The application of Blockchain in the Capital Markets and finance industry is expected to change the lives of millions of people who are still unbanked and are unable to take advantage of the modern financial system.
Bring down costs
Gradual, decentralized finance developments are expected to reduce the cost of the transaction to half – enabling a blockchain-based economy to grow multi-fold in the next few years. The remittance market is huge, with high fees imposed by centralized authorities such as banks. Nearly millions of foreign-employed individuals transfer billions across the border to their dependents each year but to transfer funds cross-border, they have to pay high mediator bank fees. By using decentralized finance developments, individuals and institutions can save over 40% of their bank fees. The cut down in transfer cost will help increase the volume and velocity of the fund’s transfer across the border.
Lend and Borrow
Accessing a line of credit is difficult for any individual without a bank account or restricted access to existing financial infrastructure. Loan issuance is another critical part of the existing financial system that can be made available to the masses by integrating recent decentralised finance developments. Because the unbanked population lack access to essential metrics such as credit score data – financial institutions prefer not to lend funds to such unbanked individuals. Applying Blockchain in Capital Markets and the debt market is expected to eliminate such problems. Numerous DeFi protocols today allow borrowers to connect with the lender over the internet across the border – eliminating the complex credit check procedures.
Financing asset holdings
A varying range of DeFi protocols and decentralized financial instruments are the product of rapid decentralized finance development. Lending and borrowing platforms, algorithmic stablecoins, BTC tokens, and a basket of DeFi protocols are among the most prominent investment instruments employed by investors across the web3.0 ecosystem. The programable smart contract enables investors and users to unlock a wide range of decentralised asset financing methods and risk management techniques. DeFi protocols allow the investor to access liquidity without applying for it on any kind of centralized exchange. Blockchain in Capital Markets and across financial infrastructure enables investors to collateralise loans against crypto tokens, digital assets such as NFTs, and DeFi tokens. Crypto traders can employ flash loans – which usually get settled in a single transaction.
DeFi enabled the transition from an old, centralised financial system to an entirely digitised peer-to-peer monetary system. Besides the application of Blockchain in Capital Markets, blockchain is also transforming the supply chain management industry. Recent decentralised finance developments are expected to help streamline operational inefficiencies across domestic and international supply chains. Defi and Dapps allow supply chain collaborators to instantly send and retrieve different types of documents across borders – boosting the overall speed of the process.
On top of that, the application of blockchain in capital markets and other associated markets is expected to remove most inefficiencies and inaccuracies and imbue more transparency in the process.
Grow your investment portfolio with DeFi
The application of blockchain in Capital Markets will help automate fund management. Blockchain can make fund management accessible and open to everyone because there is no requirement for a human fund manager who is taking a massive cut of retail investors’ profits as charges for managing funds.
Permission-less, interoperable, and transparent
To conduct operations and transactions by leveraging decentralised finance developments, investors don’t have to obtain approval from any type of centralised authority. On top of that, decentralised finance developments are not vulnerable to a single point of failure. DeFi applications act as Lego blocks for finance-based applications. Defi enables the developer to further expand over the existing protocol to deliver the interoperable and customised application. Plus, DeFi applications are usually open-sourced – making them safer, transparent, and of better quality when compared to other types of proprietary software. Transparency is at the core of blockchain technology – as all the transactions are available to the masses via the public ledger. Permissionless, interoperability, and transparency are some of the critical features of blockchain technology that help imbue trust in the decentralised system.