If you know the pattern of things in the crypto industry today, you must have met DeFi (decentralized finance) at least twice. Between 2020 and February 2021, users had invested nearly $ 20.5 billion in various DeFi protocols.
The investment statistic gives you insight into the speed at which decentralized finance is changing in today’s crypto economy.
We are talking about a system that is a preferred alternative to today’s traditional banking. But before continuing, you might want to understand DeFi better. Let’s get straight to the point!
What exactly is DeFi?
DeFi is the acronym for Decentralized Finance. It is a blockchain-based financial technology independent of traditional financial intermediaries such as banks, stock exchanges and brokerage houses to offer financial services to its users.
DeFi is a convenient financial system that provides more than you might expect from traditional financial intermediaries.
For example, you can lend and borrow funds on DeFi platforms, as well as forecast price changes on a variety of assets, insure against risk, trade cryptocurrencies, and earn interest.
In addition, some DeFi apps offer high interest rates, which often come with proportional risk factors. DeFi exposes you to global markets and more viable alternatives to your banking options and local currency.
We are talking about an open financial system relying solely on technology as an alternative to the relatively slow, manipulative, monopolistic and legalistic banking system.
DeFi removes the financial banner that financial intermediaries place you.
In other words, it immerses you in the heart of the technology that determines the outcome of your investments. So you can view and control your assets on a blockchain.
Plus, DeFi brings financial services to the doorstep of the average person.
That is, you are just one Internet connection away from being part of the technology that puts you at the center of your financial investments.
That said, it’s no stranger to you that DeFi is quickly overtaking the current banking system. However, let’s explore the reasons below:
1. Low interest loans
As you may know, the government or other third parties control virtually every aspect of the banking system today.
As a result, you have to go through financial intermediaries to access all kinds of funds, from mortgages and auto loans to trading in stocks and bonds.
The lack of financial intermediaries on blockchain networks drastically reduces interest on loans. US regulators like the Securities and Exchange Commission (SEC) and the Federal Reserve set rules for brokerage houses and centralized financial institutions.
These rules are subject to Congress amendments and significantly destabilize interest rates. The centralized system therefore creates unstable rates, especially for individuals and small businesses seeking credit.
However, decentralized finance takes you straight to on-chain financial services, and away from the banks, lenders, and exchanges that earn their fair share of your banking and financial transactions.
This means that you are protected from the crazy hidden charges that come with banking transactions.
Credit checks do not determine interest rates in DeFi. Instead, DeFi protocols set universal rates, and all you need is enough collateral to access a loan.
2. High return on investment
Unlike the very low ROI of traditional bank customers, DeFi offers users incentives for their financial activities. A typical example is staking, which involves lending or investing your digital assets in a proof-of-stake platform.
You earn substantial amounts of rewards every time you lend your digital assets. DeFi allows lenders to hold the interest that would typically belong to the bank or brokerage house.
The best return on investment is evident in Coinbase and Compound Treasury’s decision to launch USDC-based loans, loans that earn at least 4% return.
Current traditional financial offers do not live up to such a reasonable return on investment. Surprisingly, DeFi platforms offer businesses cross-geographic access to funds with much more variable rates, which otherwise wouldn’t be available.
Meanwhile, the rapid growth in lending products is primarily driven by individual holdings and personal trading of crypto assets. In addition, big banks like the US Bank and Morgan Stanley now provide their wealth management clients with crypto products.
3. A transparent financial system
People who access financial services need a system that gives them the advantage of supervision to better control their investments and transactions. And, fortunately, blockchain technology is today a trusted source for financial activities.
Users have better control over their digital assets and see their storage location and usage. Monitoring digital assets makes DeFi a transparent financial system.
In addition, a transaction is permanently recorded on the blockchain during the deployment of smart contracts and becomes permanently unalterable.
Additionally, the system only executed trades when both trading parties fulfilled their end of the deal – a popular example being P2P (peer-to-peer) trading.
4. Open access to financial services for all
DeFi should go with the slogan “Finance for All”. It’s just a suggestion anyway! But, DeFi is breaking the rules by creating an open-door financial system for everyone, regardless of credit history, net worth, location, or class.
Thus, you have access to a more complete financial system if the banks refuse you. As physical banks and financial institutions shut their doors to save money, DeFi is moving forward with daredevil momentum.
And, by lowering the barriers that reduce access to loans, DeFi is increasingly accepted by those whose banks, lenders, and brokerage firms do not meet their financial needs.
As it stands, the famous quote from Bill Gates: “The bank is necessary; banks are not ”, can no longer be valid.
5. Autonomy of investments and ownership of assets
You have full ownership of your funds as a participant in decentralized finance. In the absence of intermediaries, you are your boss. DeFi makes you a sole proprietor, so to speak, and you can invest and earn reasonable returns on your investments.
It is also exciting that DeFi gives you a variety of options for your digital assets. You can stake, lend, borrow and safeguard digital assets.
For example, you can bet your cryptocurrency on Yefi.one-a DeFi staking platform to earn passive interest when you invest your crypto assets in its decentralized application (YeFi DApp).
The YeFi DApp gives you a fun and intuitive way to earn passive income on your crypto. The YeFi platform stands out for its security, and you can make a daily APY (Annual Percentage Return) of up to 80% on your crypto investments.
6. Environmental sustainability
The minting of paper money around the world has led to the continual cutting of trees, which has increased the saturation of greenhouse gases in the atmosphere. And according to the US Mint, more than 40,000 tonnes of metal go into coin making in the country every year.
Decentralized finance is a shift from physical to digital currency. And while DeFi activity on blockchains can still release a substantial amount of carbon into the atmosphere, several solutions are creating ways to counter or minimize emissions.
For example, Pop corn provides a carbon neutral DeFi platform where investors encourage carbon neutral transactions and achieve high returns on investment.
Popcorn is one of the few socially responsible DeFi companies where you can choose to ‘do good’ or donate your earnings to its decentralized social impact program.
Popcorn’s carbon-neutral savings account proves the company operates a conscious DeFi model that takes into account the carbon footprint of blockchain activities. You can invest in Popcorn and start generating high returns on your crypto assets.
You have seen how decentralized finance seeks to replace traditional banking and take control of the scene with its more advanced technology-driven system.
From low-interest loans and high ROI to open, all-inclusive access to financial services, there’s no better time to join the DeFi train than now.