Wednesday W.O.W - DeFi 💸🌐💱
[5 min read] Your mid-week bite sized treat on emerging tech on our journey to the Metaverse. Learn about Decentralised Finance, the umbrella concept transforming how money and value flows globally.
A nibble of knowledge in your inbox every Wednesday with a simple format:
🇼 What the technology is
🇴 Objective(s) - what is it trying to achieve, with some examples
🇼 Why it is important to users as well as businesses & brands.
This is week 26 of the 520 weeks of writing I have committed to, a decade of documenting our physical and digital lives converge.
🇼 What is DeFi?
Decentralised Finance, or DeFi for short, emerged as a niche within the crypto and blockchain space. It is an umbrella term for all kinds of alternatives to traditional financial services that leverage smart contracts and decentralised applications (DApps). Initially built on Ethereum, DeFi has gained traction on other blockchains and continues to thrive in the ecosystem.
At its core, DeFi takes the decentralisation qualities of Bitcoin and expands on them, empowering individuals instead of central entities. Traditional financial institutions often hold power over our funds, imposing limitations on our access and control. In contrast, DeFi disperses power and risk, offering services controlled by the end user. In emerging economies, DeFi can be the only option to financial services people have, all they need is an internet connection and a smartphone.
🇴 What objectives is DeFi trying to achieve?
Now that we have a grasp of what DeFi is, let's explore its objectives and how it is revolutionising the financial landscape. Here are a few key examples, each deserves its own dedicated Wednesday W.O.W:
1. Lending and Borrowing: DeFi enables users to access lending and borrowing markets without relying on banks or intermediaries. By leveraging smart contracts, individuals can secure loans by collateralising their cryptocurrencies.
2. Yield Farming: DeFi provides opportunities for users to earn returns by participating in liquidity pools or lending their crypto assets to others. This innovative approach allows investors to put their assets to work and earn additional tokens as rewards.
3. Decentralised Exchanges (DEXs): DEXs enable users to trade digital assets directly without the need for intermediaries. These platforms operate in a noncustodial manner, ensuring that users have full control over their assets.
4. Stablecoins: To facilitate a stable unit of account within the DeFi ecosystem, stablecoins play a crucial role. Pegged to fiat currencies, stablecoins offer stability and reduce the volatility associated with cryptocurrencies.
🇼 Why is DeFi important to the future of the financial landscape?
Now that we understand the objectives of DeFi, let's explore why it will pay a role on the future of value movement. Here's what makes it significant:
1. Financial Inclusion: DeFi has the potential to provide financial services to the 2 billion unbanked individuals worldwide. By leveraging blockchain technology, DeFi removes barriers to entry and offers access to financial services for those who were previously excluded.
2. Enhanced Security: With DeFi, the dispersal of data and assets across multiple locations reduces the risk of a single point of failure. This decentralised approach enhances security and mitigates the impact of potential breaches or hacks.
3. Transparency and Trust: DeFi protocols operate on open-source code, enabling anyone to scrutinise their functionality. This transparency builds trust among users, as the rules and operations are visible and verifiable.
4. Improved Efficiency: DeFi transactions occur 24/7, allowing for near real-time settlements without the need for intermediaries. By eliminating middlemen, DeFi streamlines processes and reduces transaction costs.
In conclusion, Decentralised Finance is transforming the way we interact with financial systems, offering accessibility, security, transparency, and efficiency. As the DeFi space continues to evolve, it has the potential to reshape traditional financial services and empower individuals worldwide.
That’s all for this week! If you have any organisations in mind that could benefit from learning about emerging technology, be sure to reach out. Educational workshops are one of many consulting services I offer.