In recent times DeFi has started to take control of the financial ecosystem. The concept has DeFi emerging as the fundamental disruption for blockchain technology. As a result, it has pioneered the development of new concepts of finances and assets using the potential of fast and flawless technology i.e. Blockchain. Hence, DeFi defines and supports the possibilities in the financial infrastructure. Ethereum was the first blockchain to introduce the idea of DeFi to the public.
Use cases of DeFi (Decentralized Finance)
DeFi is the massive and well-coordinated approach toward revolutionizing the traditional finance which was centralized in nature leading to an immense dependency on the middlemen. Moreover, it has come up as a powerful solution that is accessible, transparent, and resilient. So, let’s have a broader look into the impacts of the present and potential use cases of DeFi.
Effective Asset Management
It is the most significant use case of DeFi where users enjoy better control over their assets. As a result, the purchase, sale, and transfer of digital assets have become easy sailing for the users. Alongside, physical assets, one can earn interest on digital assets too. In the DeFi ecosystem, the users can keep their sensitive data safe using their private keys and passwords.
KYT (Know-Your-Transaction) and Compliance fulfilling
It is indeed true that every financial transaction these days is verified by the comprehensive KYC norm. Thus, at times KYC verification becomes an extensive and time-consuming process. As a result Blockchain technology leverages support for this compliance instrument which is of utmost importance for anti-money laundering (AML) and counter-terrorist financing ( CFT). DeFi addresses the shortcomings in the physical KYC by extending it further to KYT where the transaction behavior and address are both verified to ensure its fraudulent use.
Creating Tokenized Derivatives
The tokenized derivatives are built on smart contracts that have become one of the interesting use-cases of DeFi. Tokenizing the derivative is the comprehensive process to determine the value of the contract based on the underlying financial asset. It is considered secondary security and the value varies concerning the main security. Thus, derivatives are popularly chosen for creating synthetic assets.
Supporting Data Analytics
Data Analytics is the fast-growing technological field where AI and Machine Learning have proved to be of great importance. Additionally, the DeFi project like CoDeFi Data and DeFi Pulse are delivering immense value in creating effective risk management systems in the form of Data Analytics. As a result, the implementation of DeFi in Data Analytics has provided a competitive advantage to the business over the years.
Lending and Borrowing are the key components of financing and DeFi acts vital in facilitating Peer-to-Peer Financing. Recently, many DeFi projects have entered into the business of lending and borrowing. The projects like Compound and Pool use autonomous-based protocols to facilitate asset financing using blockchain.
DAOs in DeFi
DAOs are the significant financial institutions in the DeFi platform which act as the administrative body to govern the financial operations. It includes fundraising, governance implementation, asset management, facilitating transactions, etc. Being decentralized in nature DAOs do not adhere to boundaries and protocols set by the central authorities. As a result, DAOs have their own set of protocols that govern the complete DeFi world.
The Ethereum blockchain ecosystem supports the majority of DeFi projects and has supported DeFi in its long-lasting journey. The potential of the DeFi is in no way hidden and is the best answer to address the shortcoming in the traditional financing system. The idea of Decentralized Financing has disrupted the financial ecosystem and is expected to flourish with better innovation and protocols in the future too.