With the rapid growth in the global economy, millions of people are left behind who do not have their bank accounts. It is the reality that happens to be exacerbated by the global economic impacts of the novel pandemic virus.
Problems Addressed by DeFi
Without a personal account in a bank, a person cannot claim for a loan, earn interest on savings or invest in a property. Decentralized Finance solves this issue by democratic rising access to a wide assortment of financial services. Moreover, anyone having an internet connection can think about depositing digital assets into decentralized finance protocols and begin earning interest like a passive income.
Digital assets can also be put up as collateral for acquiring a loan. Earning passive income by adding digital assets to liquidity pools, yield farming and collecting charges on trade is possible through decentralized Finance.
Decentralized Finance makes a change by making these kinds of wealth generation opportunities available to everyone. They also include people in developing areas with close financial inclusion gaps. Now, with decentralized Finance, the global monetary system can transform for the better.
Challenges in the DeFi Industry
Decentralized Finance still happens to be an immature industry with human risks and capital. It serves as a Ram into the financial system where people put their hard-earned money to work.
Over time, economic uncertainties have spurred interest in the world of cryptocurrencies. Bitcoin adoption increased amid hyperinflation in various countries. Since the financial crisis of 2008, several Bitcoin whitepapers released as a response to the massive fallout. In the middle of another period of economic uncertainty now, the skyrocketing participation within the decentralized Finance and surging Bitcoin prices can be witnessed.
Nations are facing the sharpest decline in per capita income since 1870. With millions of people at risk of being driven into severe poverty, financial initiatives are rightly being focused on. On the other hand, when it comes to digital financial services, they have been made invaluable in helping to keep citizens out of poverty amid the covid-19 pandemic.
People are unable to pay for services and goods, get compensation for unpaid work, get secure financial and economic support and social assistance payments like bank loans for declined businesses. As beneficial as DeFi services have been, they still depend on the broken financial system that fails to address the essential issues that are holding billions of people away from participating within the global economy.
How Decentralized Finance Takes the Finance Industry to the Next Level?
The ability of decentralized finance to improve financial service access, even though people hold a bank account, brings a whole new framework for the financial industry that happens to be a better solution for people.
Initially, decentralized finance systems enable anyone on how to get a loan easily. Borrowing and lending refer to a critical point of entrepreneurship and business growth. Additionally, without a loan, various people cannot get the level of financial backup required to brush up their livelihoods in terms of family growth, education, and career or kick-start businesses. As far as the pandemic recession is concerned, it is the need of the hour for entrepreneurs to get financial access to capital. It is because small and medium-sized businesses will serve to be the central job creators globally. With people having good jobs, they can buy services and goods, thereby engaging in actions that help propel the worldwide economy.
Coming to the second point, decentralized finance confronts the problem of currency debasement. Currency debasement has ended up in plaquing conventional monetary assistance after the abandonment of the gold standard. Provided the negligence of value peg or asset backing, extreme inflation is inevitably experienced when it comes to fiat currency. It indicates that the Yuan, Euro and the dollar a person earns now is likely to be worthless tomorrow. As far as such a system is concerned, it is not conducted to personal or business financial growth. Decentralized Finance operates outside any Central bank or Government, and, therefore, does not experience the identical Fiat or debasement instruments.
With the passing time, as the usability of decentralized Finance improves, and more and more people become aware of the benefits of centralized finance services, the participation gaps will gradually diminish.
Moreover, decentralized finance comes with more resistance and privacy to financial censorship and much-needed accountability and transparency into the systems of Finance. If each of the code is considered public and accessible for everyone to review, decentralized Finance ameliorates theft and corruption concerns that flourished with lacking transparency. Thefts likely occur on decentralized finance protocol, but these generally happen due to the negligence on the protocol creator’s part when it comes to conducting security audits. In case of vulnerabilities in the code, fraudsters are likely to exploit it; therefore, the requirement of smart contract auditing before launching is the need of an hour.
Future of Decentralized Finance
Provided the revolutionary growth of centralized Finance, it is evident to wonder why people are not already using it. It can be stated that decentralized finance protocols have a long way to go before people can effortlessly use it with online trading platforms and payment applications. Additionally, receiving a loan utilizing digital assets by putting it as collateral is not something simple as purchasing a product from an online marketplace. Considering the advantages of decentralized Finance, the hurdle related to ease of use contributes to the lack of diversity within the decentralized finance user base. These are something that the protocols need to seek to address.
As per experts, decentralized finance users happen to be dominated by males within the age gap of 20 to 30 years old. With improved usability as more people use and become aware of decentralized finance services, these participation gaps are likely to diminish in the future. Therefore, the need for a continued press for prolonged internet access throughout the globe is the need of the hour. Without timely and proper internet access, people remain barred from participating in the developing digital economy, including all the decentralized finance services accordingly.
With that being stated, as per a report on digital Finance, more than 750 million people lack internet connectivity. With continued smartphone access expansion, we can witness a global transition to decentralized Finance to bridge financial inclusion and participation gaps. Therefore, it ensures that everyone can participate in developing digital and global economy.