As the world moves more and more to the digital space, money and investments are also transitioning. It may feel daunting to learn the ins and outs of digital currency and how Decentralised Finance (DeFi) impacts the performance and sale of goods and services, loans, investment, and a whole host of other financial transactions it encompasses.
We’re sure you’ve already heard about cryptocurrencies like Bitcoin, Ethereum, and Dogecoin. While these cryptocurrencies drive the industry, DeFi provides a way to execute transactions. The goal of DeFi applications is to replace traditional financial services in a permissionless, global, and transparent manner. In this article, we will provide an overview of how DeFi is revolutionising the financial landscape.
What Is DeFi?
Decentralised Finance, or DeFi (dee-fye), is an umbrella term used to describe the vision of a financial system independent of banks, insurances, and clearinghouses. Instead of intermediaries, it is operated by the power of smart contracts.
This means that DeFi is not dependent on an authority to conduct monetary policy, regulate banks, and provide financial services like economic research. Instead, DeFi is used as a peer-to-peer payment system for goods and services, skipping the step of going through a bank or other financial institution.
Since 2020, DeFi has grown at an astonishing pace, with billions of dollars being put into the ecosystem. Many of the DeFi applications have been initially built on Ethereum however plenty of additional blockchains such as Binance Smart Chain (BSC) and Polygon are beginning to offer alternatives. With this growth in the industry, there is potential for DeFi to outperform and increasingly absorb the traditional finance systems for years to come.
Traditional Finance Systems
Decades of technological advances have created the current financial system we have today. These advances aimed to make finance more efficient and accessible. Computers and algorithms completely revolutionised the way that money is handled and how the stock market operates.
However, even with the technological advances, the world of finance is missing a key ingredient to go fully digital. It’s one thing to have electronic payment systems to move representations of money using an intermediary. However, you are essentially borrowing money to spend money rather than using actual native money to perform transactions.
DeFi cuts out the middleman and allows transactions to be immediate, transparent, and avoid transaction fees.
Moving Beyond Traditional Banks And Financial Institutions
Today, traditional finance is mainly a centralised system. People rely on intermediaries or groups of intermediaries to get access to transaction settlements and a range of financial products such as borrowing, lending, interest and derivatives. Whenever you invest, send a payment, shop online or make an investment, you’re subject to the regulations and processes of traditional finance.
These regulations and processes drive costs up by charging fees for each transaction or group of transactions. In addition, the more intermediaries there are in a single transaction, the greater the delays of processing them. This is a crucial area where DeFi applications excel.
Unlike traditional banking, DeFi supports multiple platforms where users can earn a yield on their assets and take loans out without needing to go through an exhaustive application process, the evidence is then stored in a smart contract on chain, making its terms trusted. Additional solutions are built around these base protocols making it easier for users to gain access to their desired risk appetite, whether that be a more stable digital asset to make online payments without experiencing price volatility or use deflationary assets to take out debt positions.
The Future of DeFi
DeFi has the potential to create a genuinely open, transparent, and secure financial system that is accessible to all with an internet connection. It opens up entirely new financial instruments based on public blockchains that create a new era of financial products and transactions. Bankers are experiencing disruption due to DeFi forcing digital innovation on an industry that has seen very little change over its history.
While DeFi is shifting the financial industry, it isn’t changing it overnight. As technology advances, we will see more of a move to robust, open, and transparent financial infrastructures.
Aus Merchant Helps You Navigate The Future Of Money
Aus Merchant is a digital currency provider for investors and businesses. Our brokers help you navigate the often complicated and sometimes confusing landscape of digital currency. Whether you want to buy, sell, trade, hold, earn, spend or receive digital assets, Aus Merchant is here to help you realise your goal.
Aus Merchant is a group of industry professionals and investors looking for a more efficient trading method and storing digital assets. Bringing the future financial system to a growing network of Australian investors and businesses. Contact us today to realise your future in digital currency.