Entrepreneur, investor, and founder & CEO @VirtuseExchange
The financial system is broken, and no one is coming to save you. Therefore you must learn to make and protect money on your own.
If you agree with this premise, there’s no better way to do that than by keeping and growing your money outside of the traditional financial system.
Decentralized finance, or DeFi for short, could become a killer app of banking.
So what is DeFi?
DeFi is an ecosystem of financial applications built on top of the blockchain, especially in Ethereum, that operates without any third-party or middle-man.
Its economy has grown by a massive $4 billion in 2020, and it’s now one of the fastest-growing segments in the financial sector.
Here is the main issue with DeFi.
The only genuine decentralized financial application is Bitcoin. It enables anyone with access to the internet to store and transfer money without a centralized party.
But what DeFi promises is to take it a step further.
Imagine a global, open alternative to every financial service like savings, loans, investing, or insurance.
DeFi promises to bring decentralization to the mainstream.
So, let me break down to you three use cases of DeFi that are eating traditional banking:
The first use case to see enormous growth was stablecoins.
The idea of a cryptocurrency without the chronic instability of Bitcoin is very appealing to many.
On the one hand, they offer the price stability of the dollar or euro. On the other, they provide speed and convenience of cryptocurrencies.
Stablecoins provide the best of both worlds.
Currently, around 80% of all crypto trading happens through the Tether stablecoin. However, others such as USDC, TruUSD, Dai, or PAX have seen astronomic growth in the last year.
So, keep an eye on the stablecoin market.
Most of the banking clients are tired of slow and expensive service and ever-increasing government regulations.
One of the most groundbreaking innovations to come out from DeFi is a decentralized exchange (DEX).
DEX volumes are exploding. According to Dune Analytics, monthly volumes grew to almost $12 billion in 2020.
So what is DEX?
In its most basic form, a DEX is a cryptocurrency platform that allows its users to trade without the need for any assets having to make their way to the exchange itself.
Hence, reducing the risk of thefts and hacks.
Right now, the most popular DEX platforms include Curve, Balancer, 0x, Dydx, Kyber, Bancor, IDEX, Oasis, and the Gnosis Protocol.
But wait, one of the best features that drew people into DEXs was the ever-increasing, ever-complex, and ever-demanding know-your-client process (KYC).
These regulations strip the clients of anonymity and create financial exclusion of more than 2.4 billion people. They are eating the banking system alive like cancer.
Decentralized lending and borrowing platforms are some of the most remarkable developments in the DeFi landscape.
DeFi lending platforms provide loans to users or businesses without any intermediaries.
These systems allow anyone with available assets to deposit them into a shared lending pool and anyone who wants to borrow assets to draw down from this pool in exchange for interest.
The most popular DeFi lending platforms are Compound, Maker, Aave, and dYdX.
However, if you want to safely take advantage of earning up to 10% yearly interest, the best companies for that are Blockfi, Celsius, CRED, Nexo, or Crypto.com.
Lending platforms make banking more flexible for anyone regardless of where they live and how much money they have.
This use case could help bring DeFi into the mainstream.
DeFi insurance is still in a primitive form.
It mostly acts as a safety net for the DeFi ecosystem. Uses can secure their deposits without the need for a traditional bank or institution.
Though not too popular with the DeFi community, decentralized insurance has a promising future to disrupt the entire insurance industry.
To explore insurance offerings outside of traditional insurance companies, visit Nexus Mutual, Opyn, Etherisc, and CDx.
DeFi is an intriguing idea with a trillion-dollar potential.
Once you compare DeFi to the traditional financial system, it’s easy to see how much more desirable DeFi is.
We already see some DeFi projects overtake parts of the centralized crypto economy, and it won’t be long until it starts to overtake the traditional banking and insurance.
There’s never been more of a need to fix the financial system and make it honest, open, and efficient.
Twenty years from now, we’ll all be laughing at how stupid we were to not take the best medicine for the broken financial system.
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