Majority of us are used to the different functions in the banking industry, these activities are what has been streamlined to function in the cryptocurrency and blockchain invention given to the gap in the traditional banking system and the measurable opportunities spotted in the blockchain invention.
Although we also have the Cefi system which is antithetical to the orientation and concept of Defi. Although these two inventions are blockchain based institutions, the Defi system in precision has proven to be more efficient in its degree of maintaining a credible level of competence against the traditional banking system.
Despite the incredible input of the Defi system to the blockchain invention especially when compared to its level of competence, we still concede to the fact that it has more grounds to break if it must exquisitely supersede the traditional banking system. However, it is speculated that about $40.6b is locked in the Defi contract coinmarketcap as of the time of streamlining this article.
The high volume of capital raised in the Defi system is due to the less regulation in the cryptocurrency industry when compared to the height of government oversight in the traditional banking system. This has further reduced almost to minimal possible infringement of entry by potential Investors.
Lately, different use cases of the Defi system have emerged and we also believe that in years to come when the invention has gained traction, there'll definitely be a more sophisticated use of the Defi system. Nonetheless, we would observe its degree of revolution in trading activities, lending, borrowing etc.
We would concede to the fact that there are different cryptocurrency in the virtual sphere like Leo, hive etc but these tokens although being decentralized aren't the Defi itself but transactional values that operate in the digital sphere but Defi on the other hand are the virtual houses of these tokens like Leodex, tribaldex etc.
Consequent to the above annotations, if this concept should be demystified further using the Hive ecosystem which is also a prototype of what Defi represents. We have it that Investors could stake in different liquidity pools without restriction.
Contrarily, developers also leverage the system in developing their respective Dapps, we've also observed where some amount of tokens were delegated to community members within a specific period which represents a borrowing mechanic without collateral, and finally we have the different exchanges that are functional in the system. These are the different attributes of a decentralized financial system although we believe that more are to surface in the near future.
Nonetheless, having gained credible knowledge on the concept of decentralized finance, we'll now observe some of its advantages and downsides below.
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The Defi system has proffered prospects of features within the timeline of its existence and its use cases ranges from logistic management, borrowing, trading, lending, royalty contracts, farming, gamification and also the incorporation of blogging as we have witnessed in the Hive ecosystem amongst others.
In essence, the Defi system has given much to the society for a leverage and we also anticipate more from the invention because there is every reason for conviction that the Defi invention is yet in its early stage.
Majority of people who have performed international transactions using the traditional banking system would attest to the fact that Defi is the best in terms of transactional cost. Consequently, most of our traditional and centralized banking system would even demand that you open a special type of account before making cross-border transfers which the Defi system has also estranged.
Defi has really increased the rate of cross-border transactions without limit given to the varieties of token preferences and low cost of transactional charges although this varies with different platforms as most of them operate on zero cost like: transfers of hive to external exchanges and even intra wallets.
We would also deduce that although the cost of transactions are at a very bantam rate in the Defi system, the cost of respective token transfers aren't the same in all the networks. For instance, the cost of transferring most Ethereum based tokens is different from some other token that uses other networks. This makes transactional cost to be nonlinear both in token and exchanges as well.
The Defi system has proven to be a topnotch invention in the history of technology. No one has been able to monopolize the system given to its democratized nature where everyone is at liberty to always build on its existing protocol or have something different based on one's technical knowledge and financial capacity.
On the other hand, the deregulation of the system has also helped in the fast growth of the Defi invention since little or no tax is in remittance to anybody while adding additional value to the system.
The Defi system can be assessed by everyone despite your geographical location. This is one issue the traditional banking and most Centralized cryptocurrency financing platforms cannot solve. With Defi, one does not need to step out of his residence before being permitted to authenticate any transaction, all you need is just a working gadget and a good network flow.
The Defi system uses the blockchain invention in streamlining its transactions, and on the other hand, the blockchain transactions cannot be altered making the Defi system the best in terms of transactional transparency.
No transaction in the Defi system has ever gone missing without a trace of where and when the transaction was issued. This is also another gap within our domestic and cross-border financial bodies. most of these financial institutions wouldn't permit the use of the blockchain so as to keep diverting dormant customers' funds without trace.
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Almost all the Defi systems are sophisticated. Majority of them demand some technical knowledge before dealing with them directly. There are instances when new users get confused and even lose their funds while dealing with most Defi systems.
For instance, despite being a trader since 2016, there are exchanges I would spend days before figuring a way out there and even in Hive ecosystem, it's not everything that I know; we have hive games but I have not played before. So there are many complexes associated with most Defi interfaces.
Volatility is an issue of concern in the Defi system. We have seen that with a low cryptocurrency price trend, most pools tend to remit investment returns below expectation given to the low prices of assets.
High volatility can cause a Defi project to go into extinction if there is not enough hedge fund by Investors to backup the project but this is not the same with traditional banking system because the banking system has it that every bank must provide a specific amount of money called reserve ratio with the apex bank of your country before you could operate as a financial institution in your country, and this RR is meant to hedge against losses by the banks.
Although we are clamoring for a continuity in deregulating the Defi sphere, this also poses some threat to the invention. We believe that since there is no third party like government adjudication, if issues should erupt between the elephant and the ant, the developers who are normally the elephant would take advantage of the system leaving investors with the choice of seeking redress from no one.
We are living in a world of high rate of uncertainties and apparent show of criminality called smartness. There are many failed Defi projects which aren't as a result of funding but as a result of developers' timing for their projects.
People keep losing money on a yearly basis because of scam projects with no one to account for these losses. Although the majority of these projects are given to high yield or returns of Investment and Investors need to do their best in avoiding these projects despite the short term recovery period involved.
The system isn't without hiccups since most Defi developers aren't ready to bear the risk in business, investors in this regard should also mind where their resources are directed since there is no third party to adjudicate in cases of bankruptcy and rug pulls. Thanks for going through.
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