Understanding Decentralized Finance (DeFi) and Its Impact
One of the major innovation and transformation that the financial system have experienced in recent years is the introduction of what is called Decentralised Finance which we always call DeFi. DeFi have successfully become a major template on which the world of finance follows and that is due to the attribute of the fact that it is tied to the Blockchain technology and beyond.
Talking about DeFi which always help to carry out financial transactions and services without not making use of the centralised authority or traditional internediaries that we are always used to. It has helped to eliminate the centralised middlemen like the banks, brokerages and also exchanges. This is to help handle the demand for efficiency, transparency and growth in the financial system.
When I talk about the Decentralised Finance, I mean a financial system that thrives on the Blockchain networks and helps to provide financial services to user using the Blockchain technology. Decentralised Finance makes use of applications called DApps and those applications thrive also making use of smart contracts to carry out their services like the lending service, borrowing, trading and many more.
Just as the name implies, one of the major features that made DeFi to actually thrive is because of the Decentralisation nature it has and this helped to give a massive edge over the centralised institutions that we are used to. It makes it easy to have a massive edge over banks and helps to deal with risks that might have been difficult to overcome if the centralised authority is still involved.
DeFi been built on the Blockchain also shared similar features that the Blockchain technology shared. Features like the Decentralisation, immutability and transparency. Currently, the DeFi majorly thrives on the Ethereum Blockchain but I believe as time goes on, there will be an evolution as more Blockchain networks will allow it to thrive. The sustainability factor of DeFi also is the making use of smart contracts
There are a lot of positive impact that the world of DeFi have contributed to the financial industry and the first is financial inclusion. What do I really mean by financial inclusion. With DeFi, we make use of internet connection alone and this impact makes financial services to be accessible all across to the world to individuals as far as you have a smartphone and internet connection. This has been a major drawback for years that the financial institution has been facing for years.
Even though there are a lot of challenges and risks in DeFi currently now, I believe it is just a matter of time before it is been dealt with. Challenges like the security concerns, the regulatory uncertainty as that is also attached due to the Blockchain technology also facing the regulatory and many more. I believe as time goes on, those challenges will be tacked with and we will live in a life of Decentralised Finance transforming the financial system around positively.