Finanzas descentralizadas, also known as DeFi, has brought tremendous growth to the Finance industry. This article looks specifically at the benefits of DeFi for Crypto Investors.
¿Qué es DeFi?
Decentralized Finance, or DeFi, combines existing blockchain technologies and auxiliary services to create a financial ecosystem that can work without banks, brokers, exchanges, and other intermediaries who usually manage and process financial services.
One of the most essential parts of the DeFi technology mix is smart contracts, lines of code put into the blockchain.
They write down the terms and conditions of contracts, keep an eye on them, and automatically execute a contract when its terms and conditions are met.
Smart contracts can, for example, keep track of loan deals and release collateral when the loan is paid back in full.
They can also manage drought insurance policies for farmers, which pay out immediately if the agreed-upon amount of rain doesn’t fall.
Payments, loans, trades, investments, insurance, and managing assets are all standard services that DeFi sites offer.
The list grows quickly and gives a tantalizing glimpse of a new age of crypto-based innovations, such as decentralized exchanges, synthetic assets, and flash loans.
Changes that Need to be Effected in the DeFi Space
Difficulties experienced by conventional centralized financial (CeFi) institutions may work in favor of the spread of DeFi practices.
However, the underlying market circumstances that sparked the current DeFi summer no longer exist.
While there is consensus that DeFi should play a significant role in the next stage of the crypto market, the details are not simple and will likely necessitate widespread adjustments to the sector as a whole.
Some of the necessary changes, among others to be made, include;
New financial primitives
TradFi bridges and real-world use
For the past few months, crypto credit markets have been under a lot of pressure. Many of the top companies in the market for discretionary loans have gone out of business or cannot work.
As a result, transparently building new credit systems has become one of the most attractive possibilities in the crypto market.
To improve credit in DeFi, you must develop new ways to give with little or no collateral.
Even though there have been some tries in this area, they are not DeFi and have been hurt by the risks of lending to market makers.
In this area, looking into alternatives that give to parties with predictable on-chain activity, like staking providers, miners, or DeFi protocols, might be interesting.
New Financial Primitive
Today, two primary protocol primitives—market making and lending—drive the vast bulk of activity in DeFi. However, such factors alone are insufficient to create a robust financial system.
There is an urgent need for new financial primitives in DeFi that can compete with the widespread use of AMMs and lending protocols.
The importance of derivatives in capital efficiency and risk management makes them a natural candidate for inclusion in DeFi’s expanded collection of financial primitives.
Protocols like Ribbon and GMX have demonstrated the promising future of the DeFi derivatives market.
However, most DeFi-derived protocols have not yet seen widespread adoption, and the field may undoubtedly benefit from further development.
TradFi Bridges and the Real World Uses
DeFi has stayed a crypto-to-crypto market in the last two years with very little access to off-chain apps.
Even though the focus on crypto has helped speed up innovation in the area, it also makes DeFi less stable as a financial market.
For example, stable returns on financial markets don’t just come from imbalances in the market.
They can also come from businesses that do valuable things in the real world. DeFi needs to make something similar happen again.
Building bridges to standard finance (TradFi) applications can give DeFi a new wave of usefulness, leading to new ways of doing money-related things.
By giving loans to financial companies, protocols like MakerDAO have been trying out ideas in this area.
DeFi is, without a doubt, the new big thing in the finance industry, with its advantages more than its disadvantages.
With a few advancements made in DeFi’s structure, it is set to dominate the financial space.