Decentralized Finance also called DeFi is revolutionizing the FinTech space. Along with Blockchain, cryptocurrencies, Defi has become a new buzzword today, as many companies are working on adopting this new technology.
Before we move forward, let us first understand what is DeFi. It is an open alternative to every financial service like insurance, loans, trading, savings accounts, and much more. DeFi or dApps enable financial systems to operate without any central authority like outdated financial systems.
According to an estimate, more than USD $8 billion worth of assets are locked up in Defi projects, even many institutional investors are eying investment in these technologies.
In 2020, DeFi tokens have also outperformed BTC and its ecosystem is quickly turning towards becoming the most popular protocol tokens in terms of value too.
Some of the leading DeFi tokens like Aave, yEarn, Uniswap, Compound, Synthetix, Kyber Netowrk, Maker among others are available in the market today.
Aave just recently jumped to the number one position as far as dominance is concerned. Another DeFi project that has been making waves is the Yearn Finance protocol with its native token YFI.
Decentralized exchange (dex) platforms have also seen massive trade volume. As per Dune Analytics, there was USD $10.42 billion in global dex trade volume during the last month.
The last 30 day’s dex trade volume has increased by 142% and Uniswap is the most dominant decentralized exchange. The dex Uniswap captures 60% of the global dex trade volume which is followed by Curve with 18.1%, and Balancer with 8.9% market share respectively.
Initially, DeFi caught the attention of the crypto and Blockchain enthusiasts, but now, grabbed the attention of traditional financial players.
According to Fidelity Digital Assets’ research, around 80% of the institutions are interested in digital assets investment.
Over the past year, the market has witnessed improved performance of digital assets, the entrance of incumbent service providers, and increasing coverage of the industry by mainstream financial firms through constructive research – all factors that may contribute to the upward trend in digital asset ownership among institutional investors, the research added.
Scope for DeFi
The main scope of work for DeFi is to address problems and inefficiencies like increasing liquidity, improving financial inclusion, and reducing costs.
As per the Global Findex Database over USD $1.7 billion people lack basic access to financial services and with the adoption of DeFi these people can be served.
The new technology can also save cost and also provide higher returns to investors while sending money to other countries, as the cost is high in the traditional system..
DeFi disrupting more fintech verticals
Financial data is one such vertical, where DeFi technology can democratize data. In traditional financial markets, the data is controlled by a group of stakeholders.
Lending through DeFi platforms which uses Ethereum Blockchain secures funds through transparent protocols. It has entered the world of innovation through no-collateral loans and compounding interest rates.
Decentralized Exchanges (DEX) is one of the most important innovations of the Blockchain industry, as the users can control their funds stored in external wallets. In the case of hacks or scams, the risk of losing all your funds can be alleviated.
In Asset Management, Defi offers, automation, non-custodial ownership of assets, global access, and financial inclusivity.
Insurance in another vertical disrupted by DeFi. It protects users against errors pertaining to custodians. The insurance can be applied to personal wallets, pools, and smart contracts for lending and staking. The ultimate goal of DeFi insurance products is to cancel costly traditional insurance monopolies, and make insurance more flexible and affordable to all kinds of users, be it institutional or casual.