DeFi Rise is Unstoppable: The Next Big Thing
DeFi was a force to be reckoned with in 2019. This year seems to be going on a similar trajectory. With the cumulative value of DeFi coins and tokens, this application will be reaching more than $1 billion in February. Excluding a minor dip around March, DeFi tokens have continued this upward trend. Today it stands at $2.52 billion.
DeFi stands for decentralized finance. This is akin to the concept of a cryptocurrency-centric form of finance that was first proposed in Fusion.org’s whitepaper in 2017. From the year it was founded, DeFi has grown just as much as the Bitcoin evolution, funneling it into the limelight of the digital transaction ecosystem.
The DeFi crypto sphere is relatively simple to understand. Like many other technological revolutions, DeFi also aims to improve efficiency and productivity, and reduce costs.
What is DeFi?
So what is DeFi, and how does it help process transactions?
If you think about transactions, intermediaries or middlemen come to mind. They represent an authority that handles and regulates transactions, such as banks and exchanges. But if you’ve tried to work with any traditional financial product before, then you know that there are charges that go in-between each transaction–and this value can easily swell. It’s the reason why there’s a discrepancy in the interest rate and payout amount in products such as loans, where a lot of money goes into these intermediaries.
It’s important to know that these cuts have merit behind them–they’re usually to mitigate the risk of losing money to delinquent loans. For years, third-party intermediaries have, no doubt, been crucial in regulating transactions and upholding protocols. Without them, there would be no formal terms between two parties, which can result in messy legal proceedings. Despite all these, intermediaries are still for-profit companies, so they take massive cuts from ordinary people. And naturally, people would prefer to have the benefits of legal transactions without the for-profit authorities in-between.
DeFi aims to get rid of the corporate third-party and replace them with smart contracts. These are lines of code that indicate if-then actions that will automatically play out once triggered. They can’t be edited or tampered with, and no central authority has to click a button to start the process. As a result, decentralized finance is a completely authority-free system.
DeFi goes hand-in-hand with cryptocurrency because they both rely on decentralization and smart contracts. That’s why it’s a given that DeFi crypto is the market standard. Some of the top DeFi coins include Bitcoin and Ethereum–and likely most other altcoins you can think of.
The primary goal of decentralized finance is an open economy that isn’t controlled by a single authority. This doesn’t mean it wants a whole new system, but rather a more democratic system based on open protocols that are interoperable, programmable, and composable.
The Rise of DeFi
The decentralized finance sector rose exponentially in 2019 when institutions started showing interest in this new financial model. Its popularity often grows in conjunction with the Bitcoin evolution, which is essentially the poster figure for DeFi networks. And as institutional interest for DeFi adoption grows, so does the possibility for digital currency and a new kind of digital banking to take off in the future. Players like TD Ameritrade, Arca, and CMT Digital have invested in decentralized finance–and it likely won’t be long before others follow.
DeFi technology has made it easier to invest and borrow money through freely-available services, such as cryptocurrency wallets. The ease with which new DeFi products and services can be created and offered to the market has caused a surge of interest.
In addition, by removing the middlemen, such as banks and other financial institutions, from the process, DeFi has the potential to make financial products cheaper, which could make a big difference in the long run. So, the main reason for the meteoric rise in the popularity and value of DeFi is due to three main advantages: low entry barrier, ease of access, and low-interest rates (which may mean higher profits for ordinary people).
The potential uses for DeFi technology and decentralized applications grow bigger every day. Top DeFi tokens, such as Chainlink’s LINK and Ethereums’ ETH, have been riding on the BTC bull run in 2020, bringing up the overall DeFi crypto price. There’s massive potential in investing in these coins due to their future-proof value proposition and potential to grow in the future. With constant innovation and evolution, DeFi could mark the start of a technological revolution in the financial ecosystem.
You want to learn more? Check out this video from The Top Coins Youtube:
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