Why is DeFi Taking Over the Banking World?
If you are familiar with the scheme of things in the crypto industry today, you must have come across DeFi (Decentralized Finance) at least a couple of times. Between 2020 and February 2021, users had invested close to $20.5 billion in different DeFi protocols.
The investment statistic gives you a glimpse of how fast Decentralized Finance is moving in today’s crypto economy.
We are talking about a system that’s a favorite alternative to today’s traditional banking. But before we proceed, you may be itching to understand DeFi better. Let’s get straight to it!
What Exactly is DeFi?
DeFi is the acronym for Decentralized Finance. It is a blockchain-based financial technology independent of traditional financial intermediaries like banks, exchanges, and brokerages to offer financial services to its users.
The DeFi system is a practical financial system that provides more than you could ever expect from the traditional financial intermediaries.
For instance, you could lend and borrow funds on DeFi Platforms, as well as predict price changes on a variety of assets, insure against risks, trade cryptocurrencies, and earn interest.
Besides, some DeFi applications offer high-interest rates, which often come with commensurate risk factors. DeFi exposes you to global markets and more viable alternatives to your banking options and local currency.
We are talking about an open financial system solely depending on technology as an alternative to the comparatively slow, manipulation-prone, monopolistic, and legalistic banking system.
DeFi takes away the financial blindfold that financial intermediaries place on you.
In other words, it brings you into the heart of the technology that determines the outcome of your investments. Like that, you can view and control your assets on a blockchain.
Additionally, DeFi brings financial services to the average person’s doorstep.
That’s to say you’re just an internet connection away from being part of the technology that puts you at the center of your financial investments.
That said, it’s no more strange to you why DeFi is fast outpacing the current banking system. However, let’s explore the reasons below:
1. Low-Interest Loans
As you might have known, the government or other third parties control virtually every aspect of today’s banking system.
As a result, you must pass through financial go-betweens to access all sorts of funds, from mortgages and auto loans to trading stocks and bonds.
The absence of financial intermediaries on the blockchain networks considerably reduces the interest on loans. US regulatory bodies like the Securities and Exchange Commission (SEC) and the Federal Reserve lay down rules for brokerages and centralized financial institutions.
These rules are subject to Congress amendments and significantly destabilize interest rates. The centralized system, therefore, creates unstable rates, especially for individuals and small businesses seeking loans.
However, decentralized finance routes you directly to on-chain financial services—and away from banks, lenders, and exchanges who earn their cut from your banking and financial transactions.
That means you’re protected from the crazy hidden fees that come with bank transactions.
Credit checks don’t determine the interest rates in DeFi. Instead, DeFi protocols set universal rates, and all you need is enough collateral to access a loan.
2. High Return on Investment
In contrast to the very meager return of investment to traditional bank clients, DeFi gives users incentives for their financial activities. A typical example is staking, which involves lending or investing your digital assets into a proof-of-stake platform.
You get to earn substantial amounts of rewards whenever you lend out your digital assets. DeFi allows the lenders to own the interest that would usually belong to the bank or brokerage.
The better ROI is evident in the move by Coinbase and Compound Treasury to launch USDC-based loans—loans that return at least 4% yield.
The current traditional financial offers are no match to such a reasonable return on investment. DeFi platforms surprisingly give businesses cross-geographical access to funds with way more variable rates, which otherwise would not be available.
In the meantime, the rapid growth in loan products is influenced mainly by individual holdings and personal trading of crypto assets. Also, big banks like the US Bank and Morgan Stanley now provide their wealth management clients with crypto products.
3. A Transparent Financial System
People accessing financial services require a system that gives them the oversight advantage to better control their investments and transactions. And, fortunately, blockchain technology is a trusted source for financial activities today.
Users have greater control of their digital assets and see their storage location and use. Oversight over digital assets makes DeFi a transparent financial system.
Besides, a transaction is permanently recorded on the blockchain on deploying smart contracts and becomes permanently unalterable.
Also, the system executed trades only when both trading parties fulfilled their part of the agreement—a popular example being P2P (peer-to-peer) trading.
4. Open Access to Financial Services for Everyone
DeFi should go with the slogan “Finance for All.” That’s just a suggestion anyway! But, DeFi breaks the rules by creating an open-door financial system for everyone regardless of credit history, net worth, geographical location, or class.
Like that, you have access to a more comprehensive financial system if banks turn you down. While brick and mortar banks and financial institutions are shutting down to save money, DeFi is advancing with daredevil momentum.
And, by lowering the barriers mitigating access to loans, DeFi is gaining wider acceptance with those whose banks, lenders, and brokerages don’t meet their financial needs.
As it stands, Bill Gates’ famous quote, “Banking is necessary; banks are not”, can’t be any more valid.
5. Autonomy of Investments and Asset Ownership
You have complete ownership of your funds as a participant in decentralized finance. In the absence of intermediaries, you are your boss. DeFi makes you a sole proprietor, so to speak, and you can invest and earn reasonable returns on your investments.
It is also exciting that DeFi gives you a variety of options for your digital assets. You can stake, lend, borrow and save digital assets.
For instance, you can stake your cryptocurrency on Yefi.one—a DeFi staking platform to earn passive interest when you invest your crypto assets in its decentralized application (YeFi DApp).
The YeFi DApp offers you a fun and intuitive way to earn passive income on your crypto. The YeFi platform stands out because of its security, and you can make a walloping daily APY (Annual Percentage Yield) of up to 80% on your crypto investments.
6. Environmental Sustainability
The minting of paper money worldwide has led to the continual felling of trees, which has increased the saturation of greenhouse gases in the atmosphere. And according to the US Mint, over 40,000 tons of metal go into making coins in the country annually.
Decentralized Finance is a move—away from physical currency to digital currency. And although DeFi activities on blockchains may still release a substantial amount of carbon to the atmosphere, several solutions are creating ways to counter or minimize emissions.
For instance, Popcorn provides a carbon-neutral DeFi platform where investors promote carbon-neutral transactions and earn high returns on their investments.
Popcorn is one of the few socially responsible DeFi companies where you can choose to “do good” or donate your earnings to its decentralized social impact program.
Popcorn’s carbon-neutral savings account proves the company runs a conscious DeFi model that considers the carbon footprint of blockchain activities. You can invest in Popcorn and start earning high returns on your crypto assets.
You’ve seen how decentralized finance seeks to displace traditional banking and take over the scene with its more advanced tech-oriented system.
From low-interest loans and high ROI to open and all-inclusive access to financial services, there’s no better time to join the DeFi train than now.
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