The world of decentralized finance or better known as DeFi has become a revolutionary ecosystem that is increasingly important in the financial world at a global level and has brought new paradigms in finance in terms of application and use of blockchain technology.
Decentralized finance (DeFi) seeks to develop complements for traditional financial products/services, adding “extra” transparency and decentralization. These accessories are like “pieces” in a “Lego game” combined with each other to develop an entire ecosystem of solutions, which together form a great advance or evolution for the finance sector.
Evolution of DeFi
In their competition with traditional banking, the services of decentralized platforms or DeFi evolve every day, improving different financial products and services. With the arrival of Bitcoin and blockchain technology, a revolution in traditional finance began, while with the arrival of DeFi, the process accelerated considerably.
Several reasons tell us that the DeFi currently has the potential to far exceed the traditional financial system and thus obtain greater attention in public opinion. This sector’s growth speed has been dizzying in recent years, and the room to grow and the new segments in the market, which is why DeFi has the potential to overcome the traditional system of finance.
Reasons why DeFi could change the financial system
According to the website that tracks the total blocked value (TVL) in smart contracts in the important DeFi applications (amount of money that users have invested in this ecosystem), it is clear that this space has grown exponentially in a short period of time. If we look at the year 2020, DeFi capital had a growth of more than 2,000%, going from having 7 billion dollars in January to having 12 billion dollars at the beginning of December of that same year, currently blocking DeFi reaches 39.4 billion dollars.
Although some Defi services are in their initial stage, it is possible that due to their rapid growth, new, more sophisticated models will appear; however, there is still a lot of room for growth in this sector, especially if it is taken into account that there are currently around 1.7 billion people in the world who do not have access to the banking system. It is important to note that the DeFi are fully open and that most only require an Internet connection to access them. DeFi has another advantage over the traditional system: they are not regulated; that is, they do not obey the same rules as traditional finance.
Convert Fiat derivatives into Bitcoin
According to Saylor, this consists of converting to Bitcoin the Fiat derivatives that the company owns, such as shares, assets in dollars, and bonds in American currency. The reason is that according to Saylor, Fiat derivatives are a “false respite and a path to servitude.” As Fiat degrades, its performance is also diluted more and more. It is best to convert those stocks and bonds into Bitcoins to protect them from devaluation and fluctuations in government monetary policies.
Main questions about the change
Due to this ecosystem’s promising future, it is good to ask yourself the following questions: to what extent are savers of traditional finances willing to reallocate their funds in DeFi applications? And the other question: to what extent are traditional finance borrowers willing to access DeFi app funds? Most lenders still have doubts and do not fully trust the crypto space, and just as many are probably unaware of such an environment. However, those who already have a presence in DeFi, have probably been in the crypto space for several years, and investors are part of the group that is embracing this technology.
Currently, DeFi applications cannot compete in speed, security, and ease of use with traditional finance. Still, they present a quite remarkable and promising development panorama, so it could be said that in the future DeFi users could be conventional homes, making DeFi more efficient, comfortable, and secure than traditional finance.
What do you think about this topic? Do you think DeFi has a great influence on the current financial system?
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