Posted 2 years ago | by Ben Armstrong
DeFi: New Ideas for the Financial Market
Markets have been shaken by the COVID-19 pandemic and civil unrest in 2020. This has resulted in a drop in consumer trust and economic activity around the world. DeFi could be the answer to many of our current struggles.
Digital platforms have seen an increase in traffic with lockdowns taking place in different countries and the decrease of outdoor activities has represented a substantial increase in services such as streaming, gaming, online education, and online markets.
There has been an increasing distrust from citizens and users alike as a result of the new challenges that governments and financial institutions have experienced around the globe, which has propelled the adoption of blockchain technology in the financial market.
DeFi Transforms Old Financial Ideas
Decentralized Finance (DeFi) projects give control back to the users and provide them will real transparency in the transactions as a result of the adoption of blockchain.
DeFi networks enable their users to lend and trade using smart contracts in a way that old financial tools do not allow. These networks recreate the banking system in a permissionless and open way for all its users, as it is powered and verified by them.
Centralized banks have been the cause of economic crises around the world, resulting from human errors which shows how centralized design can be dangerous. Decentralized Finance would result in a dramatic decrease in such risks while making the systems less fragile.
Ethereum: The Powerhouse of DeFi
At this time, Ethereum is the most popular platform used for these networks which have resulted in its crypto coin (ETH) seeing an increase in value as the market moves upward.
Ethreum provides DeFi with several advantages in the form of versatility, public accessibility, high level of interoperability, trust, documentation, and community interaction.
Liquidity and growth opportunities are elements that make Ethereum a very popular token.
Should DeFi Cause Concern?
Scalability is the biggest concern when it comes to DeFi as these systems have not been tested when it comes to handling large transaction volumes. Another concern that the current technological limitations may create problems as the systems are scaled up.
These concerns are not new when it comes to the blockchain as they are pretty much the same risks that were mentioned since the technology’s inception. Blockchain scalability depends on its adoption and its users. Over time these limitations have been shown to be possible to overcome, which is likely to be the case going forward.
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