Decentralized finance or DeFi is a new financial trend showing promise. It has grown increasingly popular in cryptocurrency circles as an alternative to the traditional financial system. Here are five things to know about the system and what it hopes to offer the world.
Open to all
DeFi allows anyone with an internet connection and a smartphone to access financial services without a middleman. Using cryptocurrency and public blockchains, people across the world can perform any financial transaction without banks or other financial institutions.
Serving the world
As of 2018, close to 2 billion adults did not have access to a bank account. DeFi services would allow them to take important financial actions such as borrowing money. They would also allow foreign workers to send remittances back to their home country at less than half the current cost.
DeFi can potentially address security issues in the financial sector. Public records are safer under a decentralized financial system because information on the blockchain is spread across devices, not held in one server.
Risks and challenges
While decentralized finance has major potential to improve lives, it comes with risks and challenges. Supporters of DeFi have to address concerns around blockchain capacity and cryptocurrency volatility in order for this to be more of a viable option. They also must spread awareness around the globe so that those who would most benefit from this service receive information about it.
More work needs to be done in order for decentralized finance to be a truly viable financial system, but experts in the field are encouraged by any growing pains. In the second fiscal quarter of 2020, hackers stole $25 million from DeFi apps, though most of it was returned. Transparency from developers about these kinds of issues are helpful in the growth and development of the industry.