A bright option for the future of finance may be upon us, and despite teething problems, interest is piqued.
Decentralized Finance, or DeFi, is the crypto space’s latest buzzwords, however in contrast to the largely useless buzz tokens of 2017, DeFi actually offers the promise of usable systems and genuine business prospects. The epic bubble and bust of crypto in 2017 left many investors with a bad taste in their mouths and a bag full of useless tokens. With interest in crypto surging, many ICOs took advantage of the large number of novice investors, creating enormous ICOs filled with promises not meant to be kept.
While this bubble and bust season of 2017 set a grim outlook for many, cryptocurrency adoption still remained strong, leading to the massive rally we saw in May, when crypto markets quickly overtook traditional in vitality. Despite the love lost experienced in 2017, most investors chose to get savvy rather than bitter, turning to exchange platforms like Bitvavo– specialty spaces designed to help investors better navigate the crypto markets. Allowing users not to be deterred by the bubbling prices of the DeFi space, but instead look upon the early days of the industry as an enticing investment potential.
What is Decentralized Finance?
Much like the IPOs of Google, Microsoft, IBM, and Bitcoin itself, getting in on the ground floor of groundbreaking business is every investor’s dream. Buying in at pennies and cashing out in pounds- or dollars as the case may be. However, unlike bitcoin, the other IPOs mentioned took decades for investors to see any real promise from holding on to the assets in their vaults. In 2017, a mere 8 years after the advent of bitcoin, prices went nuclear and millionaires were made overnight. The coin topped out at around $20k USD and has yet to see such heights since.
Despite the coin’s prolonged bull run of 2018 & 2019, and the devastating market shake out of March this year, bitcoin has since seemed to stabilize, and may be headed toward another bullish year, thanks to DeFi.
DeFi is merely the banking system to cryptocurrency’s monetary one. Just as bitcoin acts as a decentralized store of value, similar to fiat; DeFi acts as a decentralized financial instrument similar to banks and other centralized financial institutions. What sets both cryptocurrency and DeFi apart from their traditional cousins is in fact the aspect of decentralization. Neither crypto nor DeFi have any centralized authority, instead networks are maintained by users and transactions are logged in public ledgers using complicated cryptography.
What Role Does DeFi Play in Our Lives?
DeFi institutions are generally accessed via decentralized applications (DApps). These applications use a series of smart contracts- contracts which are mitigated and verified by algorithms, instead of actual humans, further serving the decentralized infrastructure of networks. These smart contracts serve to automate transactions, making them cheaper, faster, and far more efficient than traditional methods. They also completely obliterate the occurrence of issuance bias and fund manipulation. Increasing sustained accessibility across the board.
Which could help to quell issues like hyperinflation, or begin to narrow the wealth gap. Leaving investors in sole control of their finances. DeFi accounts stand in stark contrast to traditional financial institutions. Particularly in the way that they are obtained. Starting a bitcoin or altcoin wallet is fairly simple, with few identifying factors that have to be supplied. Unlike opening a bank account, which requires any number of personally identifying and validating documents- like driver’s licenses, criminal history, and even utility bills. Most DeFi accounts often cost little or nothing to open and take virtually no more than 30 minutes. Which is exceptional, considering most bank accounts take weeks to sort out.
While there remains a very positive outlook on the future of DeFi, there are also some inherent issues that we will need to contend with before it becomes a rock-solid industry. Currently, the hype over the industry is causing a myriad of bubbles and busts. Which can be a very indicting investment opportunity for seasoned portfolio holders.
There are also security, sustainability, and scalability issues that also must be addressed as the industry grows. This being said, most DeFi agencies are aware of these limitations and are focusing on them with lightning precision and speed, bringing optimism from proponents of DeFi. Making it an exciting space to watch and to interact with.