Decentralized finance came to life with the start of Ethereum in 2013. However, it really got going in 2016-2017 with the backing of Ethereum developers and some entrepreneurs and experts in the financial investment sphere. In order for our facts to be correct and to clear up all the misconceptions, DeFi encapsulates a variety of financial applications in cryptocurrencies or blockchain that are aimed at eliminating intermediaries between the parties in financial transactions.
Related: The big unseat: how DeFi is completing the work that Bitcoin started
The vast majority of DeFi applications are built on Ethereum. The first major DeFi app, and the largest, is MakerDAO, which was founded by Rune Christensen. Ethereum, to put it briefly, is an open source platform that uses blockchain technology to create and run decentralized digital applications.
The development of DeFi in later years
As an exciting new concept, DeFi is the rapidly expanding ecosystem of blockchain-based financial products that seek to replicate or expand the capabilities of traditional financial institutions such as banks, payment processors, clearing houses, and more. DeFi is presented as a solution to the problems faced by traditional banking and financial institutions and shows how it can eventually replace the old system, in real time. Regardless of the technology or platform used, DeFi systems are designed to eliminate intermediaries between the parties conducting the transaction.
The volume of trading tokens and money locked in smart contracts in its ecosystem has been growing exponentially, showing that this concept is here to stay. According to DeBank, there is approximately $ 60.5 billion in net worth currently locked in DeFi.
DeFi provides an accessible approach to managing financial transactions. As the name suggests, government jurisdictions and changes made by centralized financial institutions do not apply to it. This eliminates dependency on third parties, giving users full control over their transactions while still allowing them to remain anonymous as all transactions are carried out via smart contracts on the blockchain. Cryptocurrency trading and transactions can be executed from any location as it provides financial inclusion.
While there are no clear regulatory guidelines on DeFi-related issues, there are some countries where the country’s governing bodies consider certain isolated cases. While DeFi may be very promising, it also raises new policy and regulatory considerations.
Related: The FATF draft guidance targets DeFi with compliance
Financial regulation in the United States assumes the presence of intermediaries and applies regulation to intermediaries as a way to regulate financial markets and related activities in a comprehensive manner. As a result, regulators and policy makers may find that DeFi can take them into uncharted and yet to be tested territory.
Why will DeFi rule the world?
The decentralized financial sector has grown rapidly over the years. The spirit of the crypto function and DeFi is taking small steps in mainstream financial sectors in the face of the saga involving GameStop and WallStreetBets.
Related: GameStop saga reveals legacy finances are rigged and DeFi is the answer
At some point, the question to ask is not whether DeFi will become a major factor in the global economy, but rather how creatively it will develop and to what extent it will emerge as a force for broad benefit.
One of the keys to guiding DeFi in a beneficial direction will be the integration of advanced decentralized artificial intelligence. Few DeFi projects have so far taken advantage of artificial intelligence, but we may see artificial intelligence woven into DeFi’s next burst of activity later in 2021, and perhaps even in a way that allows DeFi to power decentralized technical projects. start with much more speed and purpose. .
There are no two ways for DeFi to emerge as a major player in today’s financial firmament. It is not about new toys for speculators to play or the provision of more sophisticated financial tools for those who prefer to keep their wealth out of the control of centralized authorities. DeFi has the potential to be much more than this, but the key to truly profound influence will be the extension of DeFi beyond Bitcoin (BTC) and Ether (ETH) to the broader reach of less liquid cryptocurrencies.
Since 2020, DeFi has spawned a vast network of platforms and protocols that allow users to exchange, trade, deposit, borrow, and lend cryptocurrencies for income and growth opportunities. This kind of cascading activity in space has not been seen in traditional financial markets for decades.
This article does not contain investment advice or recommendations. Every trade and investment move involves risk, and readers should do their own research when making a decision.
The views, thoughts, and opinions expressed here are those of the author alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.
Neeraj khandelwal is the co-founder of CoinDCX, an Indian crypto exchange. Neeraj believes that cryptocurrencies and blockchain can spark a revolution in the traditional financial space. His goal is to create products that make cryptocurrencies accessible and easy for global audiences. His areas of expertise are in the macro crypto space, and he also has a keen eye for global crypto developments like CBDC and DeFi, among others. Neeraj has a degree in electrical engineering from the prestigious Indian Institute of Technology, Bombay.