Decentralized Finance (DeFi): New Trend in Fintech

[BlockchainXTech]

Decentralized Finance (DeFi): New Trend in Fintech

The new foundation of trust

Money is about trust. Trust that the physical Euros are worth what they say, but also that the money is safe in a bank. That confidence has fallen dramatically in the last few years since the credit crisis and according to the author Edelman's Confidence Barometer , the financial sector is one of the global sectors that people least trust .

The trillions that governments around the world are currently adding to each corona crisis and addressing its aftermath also provides even more breeding ground for libertarian-anarchist ideology. This spreads an absolute freedom including a monetary system without the influence and control of governments and banks.

The fast maturing cryptocurrency industry is a perfect fit for this and the widening gap in terms of access to financial products (1.7 billion people around the world currently have no access to financial products, such as a bank and savings account DeFi projects are emerging like mushrooms.

DeFi: open financial network without intermediaries

The name already says what it basically boils down to: decentralized financing instruments, such as loans, savings and insurance, but also trade. An open financial network that basically offers the same products but without an intermediary. Equal to equal . Bitcoin started this solely for payments, so DeFi is adding other financial products.

By cutting out the middle man, transactions are faster, safer and cheaper. They have no national borders and no one can influence this, for example blocking a transaction. So, for example, you could immediately make a loan to Frankwatching to hire a new editor, without involving a bank. Or open a savings account that does not give negative interest, but a great plus.

A network of so-called 'smart contracts' automatically handles transactions. It also ensures all the necessary and important controls throughout the process. And any action if payments are not made, such as a refund.

Rapid growth in the number of projects

Out of many hundreds of companies currently offering DeFi products, almost all have their projects built on the Ethereum blockchain. Like many other 'smart contract' projects, decentralized applications and other blockchain projects have. The rapid growth in the number of projects is reminiscent of the Initial Coin Offering bubble in late 2017, which resulted in record prices for various cryptocurrencies such as Bitcoin and Ethereum.

It also caused a lot of pain to investors when the prices of most projects in a short time 95-99%. That turned out to be the case 80% of the projects turned out to be outright scam. Unfortunately, we see that happen again, as with the aforementioned YAM project, but also several DeFi output cameras.

The decentralized dream, which will become another big step with this, sounds very nice in several areas. A world that operates without rules established and controlled by governments and institutions such as banks. Everything is organized by the individual and the direct community, who are also directly rewarded for their own contributions.

Points of Attention in DeFi

But one of the main points of attention that DeFi is unfortunately still unable to adequately address is preventing money laundering and fighting terrorist financing, for example: Fight Money Laundering and Know Your Customer. The first solutions for this are now released , but they are only used on a small scale. While the cryptocurrency industry is maturing rapidly, it is still in its infancy in several areas.

Decentralized means self-responsibility. So if you do something wrong with your cryptocurrency wallet yourself, you have lost the money and have nowhere to turn to get it back. The various bugs that are currently being discovered in the 'smart contracts' that DeFi projects use are given top priority to correct and prevent forever.

[WalletInvestor]

Decentralization definitely has the potential to solve the issue that traditional finance is strongly based on trust. However, DeFi is still very vulnerable to hackers and scams. Hopefully, regulations will improve and make DeFi a more stable option.