No matter how many successful stories that we have encountered in defi development, many conventional experts still consider the blockchain as a 13-year-old boy, which is true and false for some reasons.
It is true that it is still too early to maximally embrace the defi development services and blockchain technology in all aspects in all industries. But it is true that it has become the biggest disruption in the world of finance. In the silver lining, it offers more opportunities than the drawbacks. Because if not, we would never have heard about Bitcoin and other cryptocurrencies in this timeline.
Decentralized finance development has been trending for the most recent years. But not many people fully understand its key takeaways and the perks. Financial technology must be embraced by the industries so that they are capable of competing in the borderless competition. In between, the DeFi solutions comes with a lot of opportunities that the businesses can reap for their financial success.
Decentralized finance (DeFi) explained
So, what is DeFi? Decentralized finance is a principle that is the opposite of the centralized model.
Globally, we have been dealing with the centralized financial system. We have known the banks that govern the systems and often dictate the levels of accessibility, dividing individuals into separated groups. This segregation is often a huge problem that is faced by society. One of the most dreadful results of the centralized financial model is the uneven opportunities for individuals to control their assets.
The high interest rates and fees are the most significant problems that we often see in the centralized system. The model restricts people to have the freedom to manage their investments.
Since these conventional finance systems are administered by human intermediaries, we cannot neglect the risks of human errors. In many cases, the owners of the assets don’t have much to do when their assets are tampered. The cases against them will be hard to overcome.
The central authority can pose some problems for the asset holders. Well, they don’t have full control over their assets. They don’t have such freedom. That brings us to the defi development services.
DeFi is operating in a P2P network which is backed by the most sophisticated blockchain technology. It aims to disrupt traditional finance domination.
Across the globe, there have been numerous companies who build the Dapps with the DeFi protocols. Some of the projects have the potential to disrupt conventional finance for good. For instance, there has been a rising trend of P2P lending programs that eliminate the bank and other intermediaries in the lending process.
Why smart contracts?
In the last paragraph, we stated about the removal of the intermediaries. In a centralized model, middlemen are needed to administer the transactional processes.
Since they are working by the hours, the transaction costs can be high. For instance, when you send some money to your beloved family in another country, your money will go through the local intermediary, international mediary, then to your recipient. The fees can be higher when there are layers of third parties who intervene in the deliverance. Ones would not also guarantee the level of safety. It is possible to meet the pitfalls so that you won’t ever get your money back.
In the DeFi, there will be no third party involved in the process. But then, it is replaced by the defi smart contract development. The smart contract’s main objective is to ensure security when the transaction is being conducted. And since there is no intermediary who works on the transaction, the smart contract can also significantly reduce the transaction costs. That’s why it tends to be more affordable to use the DeFi exchanges to sell or purchase your coins. It saves time and reduces the risks of errors.
How did DeFi get its start?
You might have heard the DeFi out of nowhere and wonder about what was the initiation. How can its popularity spread so fast in this timeline?
Well, DeFi is a newborn baby in the world of cryptocurrency and blockchain. Although the ideas were slated back ten years ago, the solid practices of the DeFi have only begun about 2 years ago.
If you trace it back before the pandemic took place, you are correct. The rise of decentralized finance is not without barriers. The creative creators had to work hard to build great protocols, minding the regulations from one location to another, and finding out the most ideal solution that can be applied by the industries.
Building DeFi is a bit controversial. There was a lack of positive discussions over the topic because not many conservatives were okay with the disruptive characteristics of the DeFi. But nowadays, it is to see the rosters of the DeFi movement.
Challenges within centralized finance
Many people have known the tips of the icebergs when it comes to the centralized finance problem. Here are more in-depth problems which we can see in the centralized authority.
The bureaucratic characteristics
It is something that we can’t avoid in centralized finance. Let’s see the finance employees side first.
The higher-ups are expecting the maximum results from them. The employees do not have any other choice than doing what they assigned to them.
Since the process is centralized, the employees won’t be able to contribute to the decision-making process in the ecosystem.
It is totally different from decentralized finance where the participants have the power to vote and contribute to the decision making process in the ecosystem. They can also contribute to the changes and updates of the system.
In centralized finance, there is no input from the users so that the solutions are often more misdirect than accurate.
A centralized authority like a bank could own your assets. They have the power to freeze their client’s account, seize their assets, and many more. That could be a huge problem when you need to convert your assets and your bank won’t allow it.
Lack of access
According to statistics, there are around 1.7 billion people who can’t access their bank accounts. They don’t have full control of it. Many people own assets but cannot use it for good purposes.
We won’t find the tokenized assets in the centralized finance. So, when a real estate investment takes place, only rich people can afford it. The DeFi enables people to purchase the fractions of the assets. It is possible to purchase or sell just a fraction of the asset. That means the opportunities are open to all people in the DeFi ecosystem.