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The Future of DeFi: Boom Or Bust

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VOC, Voice of Crypto, DeFi

Defi is short for ‘Decentralized Finance’. It is the umbrella term for emerging financial technology on public blockchains, particularly that of Ethereum. 

Defi grants its users complete control over their money. It enables its users to do most things they can only do with banks, eliminating the high fees that banks charge for using their services, while ensuring the safety of its users’ money in digital wallets, instead of in traditional banks.

Why Is DeFi Important?

To determine and therefore make predictions of the future of Defi, the importance of this technology must first be taken into consideration. This helps to determine what Defi as a whole might mean in the future.

Defi takes from the goal of cryptocurrencies and the blockchain in general. It eliminates the need for financial middlemen and allows any user with an internet connection to perform peer-to-peer transactions on the go. Defi allows you to 

  • Lend, trade, and borrow assets like stable coins and cryptocurrencies
  • Avoid paying high fees for transactions altogether
  • Get loans instantly, without having to fill in complicated paperwork
  • Lend out your cryptocurrencies and assets, earning interest per minute
  • Trade, buy, or sell assets without needing some kind of brokerage.
  • Save for rainy days.

Defi is open, transparent, fast, and flexible and is accessible to anyone with an internet connection.

Components Of DeFi

Defi consists of several components, tied to pre-existing concepts and technologies that are unlikely to go away any time soon. Some of these concepts and technologies include:

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  • STABLECOINS

Stablecoins are cryptocurrencies whose values are tethered or ‘pegged’ to that of another currency or asset, particularly fiat and commodities such as gold.

Stablecoins are different from regular cryptocurrencies in that while prices of the latter are highly volatile and prone to changing greatly in short periods, stablecoins are more ‘stable’. Explaining their name.

  • LENDING AND BORROWING

In Defi lending and borrowing, investors can enlist their assets for lending on the Defi platform of their choosing. These transactions rely on smart contracts for execution, meaning that no middlemen, additional fees, or paperwork are required as is the case with banks. 

An individual or group can take loans by this method, paying the borrowed amount along with interest after a specified period.

  • DECENTRALIZED EXCHANGES

Decentralized exchanges are blockchain-based apps that allow and manage large-scale trading of cryptocurrencies between multiple users. They connect buyers to sellers and allow transactions through a peer-to-peer network

  • DERIVATIVES

Derivatives are contracts between two parties involved in a transaction. The value of these contracts is based on the value of the underlying asset (like a security) or a group of assets (like indexes). these underlying assets can include stocks, bonds, currencies, indexes, and more.

Downsides To Defi

  • The high volatility of the market could make active trading more expensive
  • Regulations could vary from region to region
  • Accessing your assets might be difficult when you travel to regions in which cryptocurrencies, Defi, and other blockchain-based services are banned.
  • Defi is still unregulated. This means that the entire structure is still in some ways vulnerable to hacks and scams.

In Conclusion: Is The Future A Boom Or Bust?

Defi is by no means a full-fledged concept. Advancements and improvements are still being made over the years.

Many of the problems that plague the current version of Defi need looking into. If Defi is to ever be a big part of the future, issues such as carbon footprint, stability, security, and regulation, at least to a certain extent must be addressed.

Nevertheless, the future of Defi by all indications is a bright one.

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Adekunle Joshua is a cryptocurrency writer. He has a deep understanding of the technology and how it can be used to improve the world. James is a strong advocate for using cryptocurrency to make the world a better place. He wants to help people understand the technology and use it to improve their lives.

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