Editor's Note: This article comes fromBlockchain Camp (ID: blockchain_camp)Editor's Note: This article comes from
Blockchain Camp (ID: blockchain_camp)
Blockchain Camp (ID: blockchain_camp)
The financial system is on the verge of collapse, and there are no superheroes who can turn the tide in the real world. Therefore, we must learn how to guard the money we have earned with our own hands.
Currently, the best way to do this is to store funds outside the traditional financial system.
Decentralized finance, or DeFi for short, may become the banking industry's killer app.
What exactly is DeFi?
It is an ecosystem of financial applications built on top of the blockchain (specifically Ethereum) that can operate independently without the intervention of a third party or middleman.
In 2020, the DeFi economy grew by $4 billion, making it one of the fastest-growing sectors in finance right now.
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The main problem with DeFi
But DeFi has made a further promise: bringing decentralization into the mainstream. This will provide a global, open alternative to all financial services including savings, loans, investments and insurance.
1. Stablecoins
Stablecoins are the first DeFi use case to explode.
The idea of a cryptocurrency freed from Bitcoin's long-term instability is very attractive to many people.
On the one hand, it has the price stability similar to the US dollar or the euro; on the other hand, it also has the speed and convenience of cryptocurrencies. Stablecoins perfectly combine the advantages of both.
Currently, about 80% of all crypto transactions are conducted through the Tether stablecoin. Meanwhile, others such as USDC, TruUSD, Dai or PAX have all seen explosive growth over the past year. Therefore, the stablecoin market definitely deserves our continued attention and expectation. After all, the vast majority of bank customers are tired of inefficient and expensive services and increasing government regulation.
2. Decentralized Exchanges
Decentralized exchanges (DEXs) are one of the most groundbreaking innovations to emerge from DeFi.
In recent years, the number of DEXs has also shown explosive growth. According to Dune Analytics, monthly trading volumes have grown to nearly $12 billion in 2020.
So, what is DEX?
The essence of DEX is a cryptocurrency platform, and users' assets can be traded without going through the exchange. Therefore, the risk of being stolen and hacked can be greatly reduced.
Currently, the most popular DEX platforms are Curve, Balancer, 0x, Dydx, Kyber, Bancor, IDEX, Oasis, and Gnosis Protocol.
But in fact, the ultimate reason for attracting people to join DEX is the ever-growing and increasingly complex "know your-client process (KYC)" needs. It strips customers of anonymity and creates financial exclusion for more than 2.4 billion people. They are like a cancer that is eating the entire banking system alive.
3. Borrowing and Lending Applications
To say the most notable development in the DeFi field, it has to mention the decentralized lending platform.
The DeFi lending platform can provide loans to users or businesses without any intermediary.
Anyone can deposit their available assets into a shared loan pool, and those who want to take out loans can withdraw assets from the pool.
Currently, the most popular DeFi lending platforms are Compound, Maker, Aave, and dYdX. Meanwhile, companies such as Blockfi, Celsius, CRED, Nexo, and Crypto.com also offer up to 10% annual interest.
The lending platform enhances the flexibility of banking business and removes strict threshold restrictions on customers' location, identity, and assets.
This use case is expected to bring DeFi into the mainstream market.
4. Insurance
The form of DeFi insurance is still relatively conservative. It mainly acts as a safety net in the DeFi ecosystem. Users no longer need traditional banks or institutions to keep their deposits safe.
Although decentralized insurance is not currently popular in the entire DeFi community, it is likely to disrupt the entire insurance industry in the future.
If you want to look at insurance products beyond traditional insurers, check out Nexus Mutual, Opyn, Etherisc, and CDx.
Where do we go next?
DeFi is an interesting idea with trillion-dollar potential. If we compare DeFi with the traditional financial system, it is not difficult to find the fatal attraction in DeFi.
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