BCGAME - Free 5BTC Daily Bonus!DeFi refer to applications in public blockchains that aim to create financial services without centralized intermediaries.
A long-term and cataclysmic possible future, in which people can coordinate financial activities point-to-point on a global scale.
What is DeFi?
Bitcoin started the decentralized revolution by providing people with a store of digital value, with fixed and non-sovereign supply. However, a robust financial system demands more than a single asset.
Users need services and products that allow them to invest their capital.
This is where DeFi comes in.
DeFi represent infrastructure, such as lending platforms and brokerages that want to innovate in traditional financial systems.
So what do “decentralized finance” mean? DeFi is a broad term for various financial applications that use cryptocurrencies or technology blockchain to solve problems that exist in the traditional financial system.
Today, the financial system (made up of banks, financial institutions, etc.) consists of centralized database systems filled with intermediaries in search of yields, high rates and obstacles.
With DeFi, limited financial systems can be transformed into an open financial economy, based on open source protocols that are more accessible, with few intermediaries and more transparency.
When did it come?
There is no exact date for the appearance of DeFi, but several events have made the concept possible and palpable.
The first of these was the creation of bitcoin in 2009. Shortly thereafter, payments for bitcoin began, which may symbolize the seed of DeFi, as these payments did not go through any bank or other financial institution.
But there are other financial services besides payment, right? Lending, trading and financing can also benefit from DeFI practices, but in this scenario the bitcoin code had some limitations, and that is how Ethereum was born, created by Vitalik Buterin and Gavin Wood in 2015.
Ethereum is the ether cryptocurrency blockchain platform, one of the most popular today. This platform enables the operation of a series of decentralized applications.
After that, some other events took place and ended up contributing to the consolidation of DeFi, but the emergence of bitcoin and Ethereum was undoubtedly the biggest highlights.
What is?
DeFi is used to provide all financial services related to crypto that go beyond transfers. With this protocol, it is possible to send money anywhere in the globe, make payments in continuous flows, operate with loans, access stable currencies - and also volatile ones.
Everything that is linked to the financial market, and that today is only possible through a financial institution, can be done by DeFi more quickly, economically and while still being safe.
Are DeFi useful?
DeFi applications are useful because they allow anyone in the world to access financial services provided in public blockchains, which eliminates intermediaries and high barriers to access.
DeFi have the ability to release necessary financial services, including the ability to borrow funds, obtain loans, deposit funds in a savings account or trade complex financial products - all without asking someone's permission or opening an account.
Examples of DeFi applications:
Some examples of DeFi applications include lending and borrowing, spot trading, derivatives, stablecoins, asset management, forecasting markets and the creation of synthetic assets.
For a token to fit “DeFi”, what requirements must it meet?
Financial use case: the protocol must be explicitly focused on financial applications, such as loans, brokerage, issuance or exchange of synthetic derivatives / assets, asset management or forecast markets;
Apermissionado: open source, allowing anyone to use or develop on other projects without asking the permission of a third party;
Pseudonym: People do not have to reveal their identities;
Non-custodial: assets are not held in custody by a single third party;
Decentralized governance: updating decisions and administrative privileges are not made by a single entity, unless there is a credible timetable for removing them.
What are the benefits?
In DeFi's protocols and guidelines, your money is yours alone, it is not contributed by other institutions. That way, only you can decide what to do with that money, taking out of the hands of banks that can be dangerous for your funds.
In addition to these benefits, the speed and democratization of the system are two strengths. Transactions can be made anytime in a matter of seconds and the code is open, meaning anyone can use it without having to pay abusive fees.
How can it impact the financial market?
Like everything new, DeFi may pose a threat to the traditionalism of the financial market, but it will not happen overnight. Much of this market is still very conservative, so a trend with such innovative ideas is not going to have a big impact in the short and medium term.
But the DeFi protocols scenario has gained space, since it is possible to observe a total of more than 25 billion dollars transacted in the model. It is not an irrelevant amount, so you need to keep an eye on this trend and what the next steps will be reached by it.
Why institutions can be interested in DeFi?
2020 was considered (by the crypto community) as the year that institutions began to buy bitcoin and there are signs that Ethereum will receive additional interest with the launch of ether futures by CME in 2021.
These signals can demonstrate that institutions are walking down a path that starts with bitcoin, leads to Ethereum to arrive in DeFi in the future. A recent example is The Block's “Developing Strategies with Crypto” chat.
During the event, the leader of Morgan Stanley's crypto markets division stated: "I would say that an evolution of this current dynamic, in terms of interest [in DeFi], will continue through 2021" and "I believe that part of the technology of this The DeFi phase will certainly be used in more regulated ways throughout 2021 and into 2022.”
Although DeFi is a growing crypto industry, these were positive comments and signs of maturing in the market.
It is important to mention that, unlike bitcoin and ether, which are difficult to analyze using traditional financial models, many DeFi tokens can be considered as equity assets, which allows us to formulate discussions about the value of these assets using traditional valuation methods.
This would allow investors to create discounted cash flow analyzes, comparative analyzes between companies and comparative analyzes between transactions to value these assets.
As popular structures gain strength and valuation standards improve, DeFi assets will attract a lot of attention from investors and financial institutions.
Is there a possible future for DeFi in 2021?
2021 is proving to be a great year for DeFi. As institutions have allocated bitcoin in 2020 and there are about 1,2 million users on DeFi, the industry may be ready for success.
Although the number of DeFi users is limited by the risks and complexity of interacting with this ecosystem, both problems will continue to be addressed in 2021.
As more capital, developers and users join DeFi, the challenges of using decentralized financial protocols are likely to lessen.
Better user interfaces in DeFi aggregators and better education of users in DeFi will result in broad participation and possible growth of users in DeFi.
Although these new financial protocols are experimental and have their problems, DeFi are developing interesting applications, with real use cases that have the potential to democratize finance.
Although institutions today have only looked at bitcoin and Ethereum, they will gradually learn more about DeFi protocols and, fortunately, use them to create a more open and transparent financial system.
A decentralized financial system will reduce fees and improve existing inefficiencies, but it will mainly provide access to financial services to millions of people who are currently underserved.
