If you have been paying attention to the world of cryptocurrency, you’ll have seen that there isn’t a day that goes by without some mention of DeFi (otherwise known as Decentralized Finance). Between September 2017 and September 2020, the value locked up in DeFi contracts has skyrocketed from around $2 million to almost $10 billion. Just in 2019, the total value locked into DeFi increased by 1,500%.
With an increasing number of users (and therefore cash and volume) flocking toward DeFi applications every day, many experts consider DeFi to be an exceeding promising sector, one that looks set to revolutionize the world of finance. The value of most tokens, cryptocurrencies, and stable coins used in DeFi smart contracts have consequently strongly increased and impacted cryptocurrency trading.
What is DeFi?
Nowadays, access to technology is no longer the main obstacle to accessing classic financial services, as most people outside the banking system have access to the Internet.
The main challenge for many people today is meeting the requirements of financial institutions – providing adequate proof of identity, meeting minimum revenues, or country-specific restrictions are what prevent these people from accessing financial and banking services, such as checking or savings accounts, debit or credit card, loans, merchant services, or investment solutions.
DeFi aims to transform the current traditional and centralized financial system into a new, open financial peer-to-peer ecosystem where everyone benefits from different financial services and products, without any centralized control or intermediaries. For that, DeFi developers have been using immutable smart contracts (mostly on the Ethereum blockchain, but elsewhere as well).
The key principles of DeFi to improve transparency, ensure financial security, unlock growth opportunities, and develop a new financial system are decentralization, rapidity, resiliency, transparency, immutability, programmability, and interoperability.
What are the main categories dominating the DeFi world today?
Decentralized Finance is all about providing financial services to all without any restrictions (as long as one has an Internet connection). Therefore, the DeFi ecosystem has launched many protocols, financial instruments, and other “dApps” (decentralized applications) in which crypto-assets can be used in more ways than fiat-assets could ever be used.
Here is a list of use cases in which DeFi can be utilized:
- Asset Management and Savings – Melon, Insta.dapp, Yearn.Finance
- Borrowing and Lending – Aave, Compound, Maker
- Data and Analytics – Alethio, Blocs, DeFi Pulse, DeFi explore, DexIndex, DuneAnalytics, MyDeFi
- Decentralized Exchanges (DEX) and Trading – Bisq, Binance DEX, Curve, Margin DDEX, Fulcrum
- DAOs – Aragon, Colony, DAOStack, DXdao, Daohaus, PieDAO
- Insurance – Etherisc, VouchForMe
- Risk management, KYC procedures and Identity – Bloom, identity.com, SelfKey Stablecoins – Augmint, DAI, DefiDollar, EOSDT, Gemini Dollar, Paxos Standard, USD Coin
- Staking – Certus One, Dokia Capital, HyperBlocks, Mythos
- Tokenization – OpenFinance, Securitize, Tokensoft
- Wallets – Argent, MetaMask, Gnosis Safe
A final word
Today, we’re heading towards a new financial order, with a system that is more decentralized than ever, using new open protocols that programmable, immutable and automatic. Of course, DeFi has been increasingly popular within the crypto-world over the last few years, but its goal isn’t to be for the crypto-initiated only – DeFi is for everyone!