How Decentralized Finance(DeFi) Will Reshape the Future of Finance Industry?

The present Decentralized Finance (DeFi) growth has increased the likelihood that it will transform financial services in 2021. According to the statistics, DeFi is expanding at a stunning rate of nearly $4 billion in assets every week, adding approximately half a billion in assets. The amount of assets locked in DeFi has increased from $650 million to $12.4 billion in the last year.

On the other side, Ethereum is the driving force behind DeFi’s rapid growth. Uniswap, Ethereum’s decentralized exchange, was at the center of most of 2020’s DeFi boom. As a result, the trading protocol is currently DeFi’s biggest dApp, with a total value of +$2.6 billion USD.

Ethereum’s support for smart contracts and capacity to tokenize make it ideal for a financial revolution, and this is why the promise of Decentralized Finance (DeFi) will be hotter than ever in 2021.

DeFi is Required

DeFi as an ecosystem is a revolution that has the potential to alter the present financial industry. The conventional financial system is a closed one in which power is centralized and controlled by central authorities/middlemen and third-party intermediaries. This not only limits people’s authority over their money but also over the income generated by their assets.

Even power over our assets held by numerous financial systems in the hope of increased profits. This appears to be an issue since the centralization of power and value also centralizes risk. Aside from that, even the biggest bankers can’t always see market flaws. The best illustration is the reversal of the activity of 2007-2009 owing to the housing market bubble in the United States. Because fiat money is restricted domestically, transaction processing costs for overseas/abroad transactions might be quite costly. DeFi offers a viable answer to this issue as well, with substantially cheaper processing fees.

This centralized power will cause major issues with transparency. DeFi is an attempt to build decentralized apps to tackle problems in the traditional financial system. DeFi operates in a complete manner by creating financial use cases such as loans, asset management, insurance, and so on.

Binance has also entered the DeFi industry with the launch of its new Launchpool platform, which is a yield farming service that allows consumers to earn tokens from new projects by staking BUSD, BNB, or ARPA tokens.

Let’s look at decentralized finance in 2022 and what it implies for the future of blockchain and money!

Finance Decentralized in 2022

The entire value locked into the Decentralized Finance market at the start of 2020 is over $680 million. The DeFi market is now worth $6.68 billion, representing a 982 percent increase over the previous year. This quick exponential rise in fund increase gives you a sense of how DeFi’s potential will be in 2021.

In terms of cash, the three most important initiatives account for more than half of the money in DeFi. These are the projects Maker, Aave, and Curve Finance. These three initiatives total $3.5 billion, making them massive in the Decentralized Finance network. Curve Finance is a DEX, whereas Maker and Aave are lending and borrowing platforms. DEXes are short for Decentralized Exchanges, and they are exchanges where individuals may trade assets directly with one another.

The three initiatives described above have locked-in cash, and the number of Decentralized Finance ventures is growing rapidly as well. This is hardly surprising given the tremendous growth in the amount of money invested in this area. The rise in the number of projects and finances will also enhance the rate of innovation in the sector. As a result, dApp developers will create unique new solutions, significantly improving the Decentralized Finance industry.

What Impact Will DeFi Have on Financial Services?

As previously said, the DeFi industry floods with several projects. These initiatives are already in the works, reshaping finance forever. But how are they reshaping finance, and where can we anticipate changes and new ideas?

To begin with, one of the most significant implications of decentralized finance in 2021 will be the elimination of the need for an intermediary. Smart contracts are actually taking over the functions of banks and other institutions. The elimination of the third person/middleman will cut consumer expenses, allowing more and more individuals to participate in the financial system since it will be more inexpensive. Furthermore, the most essential change that decentralized finance will provide in 2021 is that of financial infrastructure. In today’s culture, over a fourth of the population is unbanked, which means they cannot make transactions, save money with interest, or invest money. These are substantial opportunities for wealth accumulation, and they may be offered by a decentralized financial system.

The absence of infrastructure in the financial industry is the primary reason that 25% of the population has no interaction with a bank. People do not live close enough to a bank to become members, and it might be too expensive in other circumstances. By decentralizing the finance system, DeFi can address both the above-mentioned infrastructural and cost issues.

Here are some of the places where decentralized money is causing havoc.

1. Information – Traditionally, financial market information totally controls by a limited group of persons and stakeholders due to the importance of financial data. DeFi will equalize financial information and make it more accessible, rewarding participants and encouraging greater engagement in sourcing, presentation, and access.
2. Lending/borrowing – DeFi lending systems make use of Ethereum and its smart contract technologies. Borrowers can protect their cash in an open setting. Instead of paying middlemen fees, the method rewards participants with cryptocurrency. DeFi supports peer-to-peer lending, no-collateral loans, and lower interest rates for capital providers.
3. Decentralized exchanges – One of the most fascinating DeFi technologies is decentralized exchanges. These trading platforms provide a lesser risk of loss and direct asset ownership control. This indicates that there is no intermediary person acting as an authoritative figure in the process. People can instead transact with one another directly using a peer-to-peer system.
4. Innovative Asset Options – DeFi has the potential to offer considerable advantages over traditional asset management. Decentralized Finance will allow people to own their assets without entrusting them to anybody else. For example, purchasing stock from a bank gives you sole ownership of the item.

Another advantage of DeFi for the asset management business is that consumers may retain assets with no restrictions and have worldwide access. This is related to the fact that one-fourth of the population does not have access to a bank and hence cannot invest or hold financial assets. As it becomes increasingly available internationally, it will open up investing options for those who do not have access to a bank.

5. Security – DeFi can provide additional security to investors that use digital assets. DeFi insurance providers protects against a wide range of risk variables. Also work in a transparent atmosphere, giving the insured more options and cheaper costs.

DeFi has numerous uses in financial services, and it has been widely accepted. Overall, we will witness more decentralized finance in 2022 as it reshapes financial services.

Conclusion

Decentralized finance enable by blockchain technology. DeFi services have the ability to increase financial participation, allow open access, stimulate permissionless innovation, and open up new doors for innovators and entrepreneurs.

Rise of Decentralized Business Models in the Financial System – DeFi may transform contemporary finance’s structure and create a new arena for entrepreneurship and innovation, defining the potential and difficulties of decentralized business models.

So, in 2022, DeFi will undoubtedly become a game-changing technological advancement that will alter our financial system. This is fantastic news for blockchain platforms, financial institutions, and clients, as it will gain significant benefits from new and improved operations.

So, if you want to take advantage of these high-yielding chances, don’t hesitate to contact our DeFi Developers!! Suffescom as a DeFi token development company provides high-end DeFi development services to expand and level up your financial platform. Fill out the form below to contact our developers for additional information or questions about DeFi-related services.