With the birth of Ethereum in 2013, decentralized finance began to emerge. However, between 2016 and 2017, it really started to operate with the support of Ethereum developers and some entrepreneurs and experts in the financial investment field. In order to make our facts correct and eliminate all misunderstandings, DeFi encapsulates various financial applications in cryptocurrency or blockchain, aiming to eliminate intermediaries between parties to financial transactions.
related: The great debanking: how DeFi does what Bitcoin started
Most DeFi applications are built on Ethereum.The first major and largest DeFi application is MakerDAO, which is created by Rune ChristensenIn short, Ethereum is an open source platform that uses blockchain technology to create and run decentralized digital applications.
The development of DeFi in subsequent years
As an exciting new concept, DeFi is a rapidly expanding blockchain-based financial product ecosystem designed to replicate or expand the capabilities of traditional financial institutions (such as banks, payment processors, clearing houses, etc.). DeFi is described as a solution to the problems faced by traditional banks and financial institutions and shows how it can eventually replace the old system in real time. Regardless of the technology or platform used, the DeFi system aims to eliminate intermediaries between transaction parties.
The amount of transaction tokens and funds locked in smart contracts in its ecosystem has grown exponentially, proving that this concept will continue to exist.According to DeBank, the current net worth is approximately US$60.5 billion locking In DeFi.
DeFi provides an accessible method to manage financial transactions. As the name suggests, changes in government jurisdiction and centralized financial institutions do not apply to it. This eliminates reliance on third parties and gives users full control of their transactions while allowing them to remain anonymous, because all transactions are conducted through smart contracts on the blockchain. Cryptocurrency transactions and transactions can be performed anywhere because it provides financial inclusion.
Although there is no clear regulatory guidance on DeFi-related topics, there are some isolated cases that regulatory agencies in some countries will consider. Although DeFi may have a promising future, it has also triggered new policy and regulatory considerations.
related: Draft FATF guidelines for DeFi compliance
Financial supervision in the United States assumes the existence of intermediary agencies and applies supervision to intermediary agencies as a way of comprehensively supervising financial markets and related activities. Therefore, regulators and policymakers may find that DeFi can take them into unknown and yet to be tested areas.
Why does DeFi dominate the world?
Over the years, the decentralized financial sector has developed rapidly. Compared with the legends involving GameStop and WallStreetBets, the spirit of cryptocurrency and DeFi functions is taking a small step towards the traditional financial sector.
related: The GameStop legend reveals that legacy finance has been manipulated, and DeFi is the answer
At some point, the question to be asked is not whether DeFi will become a major factor in the global economy, but how creative its development is, and to what extent it will become a broadly beneficial force.
One of the keys to guiding the development of DeFi in a favorable direction will be the integration of advanced decentralized artificial intelligence. So far, very few DeFi projects have used AI, but we are likely to see AI incorporated into the next DeFi event later in 2021—may even somehow enable DeFi to be faster And the goal is to promote start-up decentralized technology projects.
There are no two ways for DeFi to become an important participant in the financial field today. This is not a new toy for speculators, nor is it a more sophisticated financial tool for those who like to keep their wealth outside the control of the central authority. The potential of DeFi is much more than that, but the key to achieving a truly far-reaching impact will be that DeFi surpasses Bitcoin (Bitcoin) And ether (Ethereum) To a wider range of low-liquidity cryptocurrencies.
Since 2020, DeFi has spawned a huge network of platforms and protocols, allowing users to exchange, trade, deposit, borrow, and lend cryptocurrencies for revenue and growth opportunities. For decades, traditional financial markets have never seen this kind of cascading activity in space.
This article does not contain investment advice or recommendations. Every investment and trading action involves risks, and readers should research on their own when making a decision.
The views, thoughts, and opinions expressed here are only those of the author, and do not necessarily reflect or represent the views and opinions of Cointelegraph.
Nilaji Kandelwar He is the co-founder of CoinDCX, an Indian cryptocurrency exchange. Neeraj believes that encryption and blockchain can bring a revolution to the traditional financial sector. His goal is to build products that will make it easy for a global audience to access cryptocurrencies. His area of expertise lies in the macro field of encryption, and he also has a keen eye on global encryption developments such as CBDC and DeFi. Neeraj has a degree in electrical engineering from the prestigious Indian Institute of Technology, Mumbai.