Decentralized Finance is Booming
The current boom in Decentralized Finance(DeFi) has raised the probability that it will reshape financial services in 2021. The data shows that DeFi is growing at a remarkable rate of about $4 billion in assets and adds about one-half billion in assets per week. In the past 12 months, the amount of assets locked in DeFi has skyrocketed from $650m to $12.4 billion.
On the other hand, Ethereum is the reason why DeFi is growing at a tremendous rate. Ethereum’s decentralized exchange - Uniswap was right at the heart of much of 2020’s DeFi swell. That drives the trading protocol into being DeFi’s largest dApp right now with a total value of +$2.6 billion USD.
Ethereum’s support for smart contracts and the ability to tokenize makes it perfect for a financial revolution, and this is the reason why the potential of Decentralized Finance (DeFi) is going to be hotter in 2021 than ever before.
Need for DeFi
DeFi as an ecosystem is a revolution to transform the existing financial industry. The traditional financial system is a closed one where the power is concentrated and controlled with central authorities/middle man and third-parties. This not only limits the people’s control over their money but also makes control over the profits that their assets make.
Even the control of our assets lies with various financial systems in the belief of higher returns. This seems to be problematic because the centralization of control and value centralizes the risk too. Apart from that, sometimes even the big bankers cannot see the faults in the market. The reversal of the action of 2007-2009 due to the USA’s housing market bubble is the greatest example of that. Since the fiat money is locally restricted, the processing fees for transactions can be very high in the case of overseas/ abroad transactions. DeFi paves a good solution to this problem also by having significantly lower processing fees.
This centralization of control will create huge transparency problems. And here comes the DeFi as the attempt to create decentralized applications to solve those problems in the traditional financial system. By making financial use cases — like lending, asset management, insurance, etc, DeFi works in an all-comprehensive manner.
Binance has also thrown itself into the DeFi market with the beginning of its new Launchpool platform - a yield farming service where the customers can earn tokens from new projects by staking BUSD, BNB, or ARPA tokens.
Let’s, therefore, take a look at decentralized finance in 2021 and what it means for the future of blockchain and finance!
Decentralized Finance in 2021
At the beginning of 2020, the total value locked into the Decentralized Finance market hits almost $680 million. As of today, the DeFi market is worth $6.68 billion, which means that the market has grown by around 982%. This rapid exponential growth in the increase of funds give you an idea of how the potential of DeFi will be in 2021.
The three most important projects in terms of dollars hold over 50% of the money in DeFi. These projects are - Maker, Aave, and Curve Finance. These three projects together lock in $3.5 billion, which means they are huge in the Decentralized Finance network. Both Maker and Aave are the platforms for lending and borrowing; whereas, Curve Finance is a DEX. DEXes are commonly known as Decentralized Exchanges, which basically means they are exchanges where people can trade assets directly between each other.
The above mentioned three projects are in terms of locked-in funds, and the number of Decentralized Finance projects is increasing at a rapid rate as well. This is not a strange thing since it corresponds to the rapid increase in money being invested in this sector. The increase in both no-of-projects and funds will fairly increase the innovation rate within the industry as well. Hence the Developers of dApps will come up with new solutions that are innovative and thereby further improvig the Decentralized Finance sector.
How Will DeFi Reshape Financial services?
As mentioned above, there are currently many numerous projects out there on the DeFi market. These projects are already out there making strides to reshapes finance forever. But how are they transforming finance and in what are sectors can we expect changes and innovative ideas?
First of all, one of the predominant effects that decentralized finance in 2021 will have on finance, is the fact that no intermediary can be necessary. smart contracts are literally replacing the roles of banks and other institutes. Elimination of the third person / intermediary will lower the costs for the consumers, thereby allowing more and more people to become part of the financial system since it will be more affordable. In addition, the most critical improvement that decentralized finance in 2021 will bring is that of financial infrastructure. In current society, almost a fourth of the population remains unbanked, which means that they are unable to make transactions or save money with interest, and invest money. These are significant possibilities for growing wealth and these can be provided by a decentralized financial system.
The major reason why 25% of the population is not in contact with a bank is due to the lacking infrastructure within the financial sector. People are not living close enough to a bank to become members, and in some cases, it can be too expensive. DeFi can solve both the above issue regarding the infrastructure and the costs by decentralizing the finance system.
Here are some of the areas being disrupted by decentralized finance.
1. Information - In normal, Financial market information has been completely controlled by a small group of people and stakeholders since financial data is a big business and impactful. DeFi will equalize the financial information and increase accessibility thereby reward the participants and encourage broader participation in sourcing, presentation, and access.
2. Borrowing/Lending - DeFi lending programs use Ethereum and its smart contract protocols. Borrowers can secure their funds in a transparent environment. Instead of middleman fees, the system provides incentives to the participators with crypto rewards. DeFi promotes P2P lending, no-collateral loans, and more agreeable interest rates for providers of capital.
3. Decentralized exchanges -Decentralized exchanges are one of the most exciting innovations in DeFi. These types of trading platforms offer a lower risk of loss and direct owner control of assets. This means that there is not a middle one as an authority in the process at all. Instead, people can make transactions directly through a Peer-to-Peer system and trade with each other.
4. Innovative Asset Options - DeFi may have significant advantages over traditional asset management. Decentralized Finance will allow people to own their assets without anyone else custody. For example - buying a stock from a bank holds the asset, hence you get ownership of the stock alone.
Another benefit of DeFi provided for the asset management sector is that people can hold assets completely unspecified as well as global accessibility. This ties back to the fact that one-fourth of the population is without a bank, that they are unable to invest or hold financial assets. As it can be more accessible globally, it will create investment opportunities for the people who are not in contact with a bank.
5. Safety - DeFi can constitute additional security to investors using digital assets. DeFi insurance providers can get sheltered against many types of risk factors. DeFi insurers operate in a transparent environment thus results are greater flexibility and lower costs for the insured.
There are many other applications of DeFi in financial services, and it has been welcomed by most people. Overall, we will be seeing more of decentralized finance as it reshapes the financial services in 2021.
Potential of Decentralized Finance in 2021
Empowered by blockchain technology, decentralized finance DeFi services have the potential to enlarge financial involvement, facilitates open access, encourages permissionless innovation, and create new opportunities for innovators and entrepreneurs.
Rise of Decentralized Business Models in the area of financial system - DeFi may reshape the structure of modern finance and create a new landscape for entrepreneurship and innovation, thereby establishing the promises and challenges of decentralized business models.
So in 2021, DeFi will definitely become a life-changing evolution in the world of technology that will transform our financial system. This serves to be good news for blockchain platforms, financial institutions, and the customers as it will reap high benefits of new and better processes.
Therefore to avail these high benefit yielding opportunities you can contact our DeFi Developers without any hesitation!!
We - Coinjoker being a DeFi development company offers high-end DeFi development services to enhance and level up your financial platform to the next level. For more information or queries regarding DeFi related services, you can contact our developers by filling out the form below.