Decentralized funding came to life with the launch of Ethereum in 2013. However, with the support of Ethereum developers and some entrepreneurs and financial investment experts, it really got off the ground in 2016-2017. To get our facts right and clear up any misunderstandings, DeFi encapsulates a variety of financial applications in cryptocurrency or blockchain that are designed to remove intermediaries between parties in financial transactions.
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A large majority of DeFi applications are built on top of Ethereum. The first big and biggest DeFi application is MakerDAO, which was founded by Rune Christensen. Ethereum, in short, is an open source platform that uses blockchain technology to create and run decentralized digital applications.
The development of DeFi in the following years
As an exciting new concept, DeFi is the rapidly growing ecosystem of blockchain-based financial products that seek to replicate or expand the capabilities of traditional financial institutions such as banks, payment processors, clearing houses, and more. DeFi is presented as a solution to the problems of traditional banking and financial institutions and shows how it can replace the old system in real time. Regardless of the technology or platform used, DeFi systems are designed in such a way that there is no need for intermediaries between the parties to the transaction.
The volume of trading tokens and the money locked in smart contracts in its ecosystem has grown exponentially, proving that this concept persists. According to DeBank, a net worth of approximately $ 60.5 billion is currently locked in DeFi.
DeFi offers an accessible approach to managing financial transactions. As the name suggests, state jurisdictions and changes by centralized financial institutions do not apply. This removes the dependency on third parties, gives users complete control over their transactions, while also allowing them to remain anonymous as all transactions are carried out through smart contracts on the blockchain. Transactions and trading in cryptocurrencies can be carried out from anywhere as this offers financial inclusiveness.
While there are no clear regulatory guidelines on DeFi-related issues, there are some countries where certain individual cases are considered by the country’s governing bodies. While DeFi may show promise, it also raises new political and regulatory considerations.
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The United States’ financial regulator assumes the presence of intermediaries and applies regulations to intermediaries to fully regulate financial markets and related activities. As a result, regulators and policymakers may find that DeFi can lead them into uncharted territory yet to be tested.
Why will DeFi dominate the globe?
The decentralized financial sector has seen rapid growth over the years. The ethos of the crypto and DeFi function is taking small steps into the conventional financial sector compared to the saga of GameStop and WallStreetBets.
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At some point the question arises not whether DeFi will become an important factor in the global economy, but how creatively it is developed and to what extent it will develop as a force for widespread use.
One of the keys to steering DeFi in a beneficial direction will be the integration of advanced decentralized artificial intelligence. Few DeFi projects have used AI so far, but we’ll likely see AI weaved into the next burst of DeFi activity later in 2021 – and maybe even in a way that allows DeFi to do decentralized engineering projects with a lot to advance more speed and purpose.
There are no two ways DeFi will become a major player in the financial sky today. It is not about new toys for speculators to play with, nor about making more sophisticated financial instruments available to those who prefer to remove their assets from the control of centralized authorities. DeFi has the potential to be a lot more, but the key to a really deep impact will be the expansion of DeFi beyond Bitcoin (BTC) and Ether (ETH) to the broader scope of cryptocurrencies with lower liquidity.
Since 2020, DeFi has spawned a vast network of platforms and protocols that enable users to exchange, trade, deposit, borrow, and lend cryptocurrencies for income and growth opportunities. This type of cascading activity in space has not been seen in traditional financial markets for decades.
This article does not provide investment advice or recommendations. Every step of investing and trading involves risk, and readers should do their own research when making a decision.
The views, thoughts, and opinions expressed herein are those of the author alone and do not necessarily reflect the views and opinions of Cointelegraph.
Neeraj Khandelwal is co-founder of CoinDCX, an Indian crypto exchange. Neeraj believes that crypto and blockchain can revolutionize traditional finance. Its goal is to develop products that make crypto accessible and easy to a global audience. His areas of expertise are in the crypto macro area and he also has a keen eye for global crypto developments such as CBDCs and DeFi. Neeraj holds a degree in electrical engineering from the prestigious Indian Institute of Technology Bombay.