An independent financial ecosystem offering equal opportunities, open for everyone, made by users for users, may sound as a utopia. But it’s a reality, which has already come to transform the world and people’s understanding of finance. Let’s examine a case study of DeFi, the industry that is going against the traditional financial system step by step.
What is DeFi?
Decentralized finance, or DeFi, refers to the part of the crypto universe that aims to build a new, internet-native financial system. It utilizes blockchain and other web3 technologies to replace traditional intermediaries and deploy innovative trust mechanisms.
Each DeFi ecosystem consists of cryptocurrency, software and hardware to develop decentralized applications. The infrastructure for DeFi, as well as its regulation are constantly evolving.
How DeFi emerged
It’s believed that the term DeFi was invented in 2018 by Ethereum developers during a chat. However, some agree that it all began in 2009, with the introduction of Bitcoin, which was the first blockchain-based peer-to-peer currency in the world.
Today’s DeFi took off after 2017, when people began to understand the true blockchain’s potential for the global economy. Developers wanted to enable cryptocurrency owners to do more with their money than just transferring it between accounts.
It was the period when crypto lending, hedging, arbitrage, staking and other operations appeared. Pioneers who created the first lending protocols were MakerDAO and Compound Finance. Now their ideas are being deployed and improved by many other industry players.
Conquering new users
As of today, approximately 4,8 million active wallets are into DeFi, which is twice as much compared to 2021, and the number of users is constantly increasing. However, DeFi is still not as widespread as traditional finance: as of 2022, three-quarters of all people on the Earth have accounts in traditional banks.
The main constraints are skepticism about crypto, lack of awareness and poor internet connectivity in some areas. At the same time, more and more crypto firms, such as 3air, see their goals to help users from underserved regions enter the digital economy.
Why do people choose DeFi?
The traditional centralized financial system, the main elements of which are banks and governments, cannot give users the true financial freedom and control over their own assets. So, various limitations, high fees and intermediaries are the main problems DeFi deals with.
DeFi empowers individuals with peer-to-peer digital exchanges, based on trust and blockchain protocols. It also eliminates the fees that banks and other financial companies charge for services.
Individuals hold money in a secure digital wallet, can transfer funds in minutes, and anyone with an internet connection can use DeFi in any place in the world.
So, is DeFi the new era of finance?
As for now, we can only witness how DeFi is evolving, improving its infrastructure and core principles, challenging and sometimes trolling the traditional financial world with innovations. It’s not such an en masse trend now, however it has all chances to become something common for future generations.
Yes, DeFi is the new Fi for those users who have already connected to it and can feel all its advantages. Are you among them?