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What Problems Can DeFi Solve?

By July 8, 20213 minute read

Note: This blog is written by an external blogger. The views and opinions expressed within this post belong solely to the author.

Numerous advancements have occurred within the Cryptocurrency industry over the years. These have included PayPal’s introduction of Cryptocurrency transactions, JP Morgan’s announcement of a stablecoin, and, of course, the birth of DeFi. Although  DeFi came into existence quite some time ago, the past years saw a rise in its adoption – with billions of dollars locked up on various DeFi platforms.

Since then, DeFi has been an essential factor for the adoption of blockchain and Crypto. In this article, we will discuss –  what can DeFi achieve for the Cryptocurrency industry and the world at large?

What is DeFi?

To fully comprehend the usefulness of DeFi, it is critical to have a firm grasp of just what it is. DeFi is an acronym for ‘Decentralized Finance’ and refers to blockchain-based platforms that support various financial operations without the need for a traditional middleman.

Source: appinventiv

Loans, betting, lotteries, and stablecoin purchases are examples of these operations. As it offers a level of protection and anonymity that is not present in more mainstream platforms, DeFi has grown popular with crypto enthusiasts and players in the conventional financial markets.

What Does DeFi Do?

As its name implies, DeFi offers a decentralized ecosystem. For example, the procedure of facilitating loans through DeFi. In a traditional system, the borrower and lender would exchange identifying information before the loan being approved. A borrower will either have to approach a conventional financial institution like a bank, incur additional charges, or will have to obtain financing through other channels, such as a peer-to-peer lender. Additionally, there is no guarantee that either side will adhere to all of the loan agreement’s terms.

All of these difficulties can be addressed with DeFi. All parties benefit from complete privacy – when employing DeFi. The agreement here is enforced using smart contracts. This means that no payments will be released until all contract parties have fulfilled their obligations. Additionally, neither side is required to pay any additional expenses.

DeFi also aids the betting and lottery industries. In traditional lotteries, participants wager a specified sum of money; the winner receives cash compensation, while the ‘losers’ receive nothing. However, betting on DeFi platforms is absolutely risk-free. The way it works is that interested parties contribute a fixed sum, which is then pooled and staked to obtain interest.

The lottery winner will receive the entire sum of the lottery, while the ‘losers’ will receive the initial amount paid. Additionally, users can wager on various outcomes on DeFi platforms, with winners being compensated for making accurate predictions. Given the size of the worldwide betting industry, DeFi enables more efficiency and transparency.

Decentralized Finance has been said to have led to the accessibility of financial products in the market. DeFi platforms have extremely minimal entry barriers, making them accessible to virtually anyone with a smartphone. In terms of interest rates, DeFi platforms offer beneficial rates in terms of interest rates than many traditional financial institutions, which has been a major selling point for consumers.

Source: appinventiv

The fact that DeFi platforms are not reliant on human efforts and are mainly immune to human error is its most significant advantage. With smart contracts handling the vast majority of transactions, the likelihood of a user being cheated or payments being delayed is drastically reduced.

Looking towards a DeFi – Powered Future

As is typically the case, there will be changes in the landscape of finance due to DeFi. Cryptocurrencies have demonstrated to the world that money may exist without the intervention of a central authority. DeFi is proposing that intermediaries/middlemen and financial institutions may not be required to build a financially independent world where everyone is protected but included.

Author: Rony Roy

Rony Roy is an electrical engineer who turned tech author in the Cryptocurrency space. He got block-chained in 2012 and fell in love with tech and its use-cases and has been writing his way through problems since 2016.

Disclaimer: Cryptocurrency is not a legal tender and is currently unregulated. Kindly ensure that you undertake sufficient risk assessment when trading cryptocurrencies as they are often subject to high price volatility. The information provided in this section doesn't represent any investment advice or WazirX's official position. WazirX reserves the right in its sole discretion to amend or change this blog post at any time and for any reasons without prior notice.
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