Why DeFi is the Future of Finance

Most of the world’s attention surrounding decentralized technologies—particularly blockchain—has focused on trending cryptocurrencies like Bitcoin and Ethereum. Blockchain is also making inroads into industries like procurement and supply chain logistics as a prospective tool for verifying contracts and tracking goods as they are shipped around the world.

But there is much more innovation occurring in the world of blockchain than simply the buying and selling of cryptocurrencies. Decentralized finance, or DeFi, has the potential to revolutionize the way individuals and businesses trade, loan, borrow, purchase and invest in digital assets. It could even provide underbanked communities with more financial opportunities—without much of the red tape associated with traditional finance.

Here, we’ll explore what DeFi means for the future of finance, as well as the opportunities it presents for consumers around the world.

What is DeFi?

DeFi is an alternative to traditional methods of financial interaction, transaction, and exchange, which are typically safeguarded and guaranteed by traditional banks and regulatory bodies. Simply put, a decentralized finance system is one in which financial products are available on a public decentralized network.

Most decentralized finance systems are built on a blockchain network.

A blockchain network is a decentralized database that collects information into chunks of data or blocks. Once a block is full, it is chained onto a previously filled block, thus creating the “chain” in the blockchain.

Every transaction entering the system is transmitted to a sequence of computers over a decentralized, peer-to-peer network spread across the world. These computers solve equations to confirm that the transaction is valid. Once the transaction is confirmed, clustered into blocks, and chained to previously filled blocks, it creates a long history of transactions that are verifiable across the network and, therefore, permanent.

Instead of relying on central institutions to authenticate and secure transactions, DeFi systems use a mix of open-source technologies and proprietary software to facilitate and verify transactions. That means DeFi financial products are available for almost anyone to purchase and access. All they need is a way to connect to the network and a tool that enables them to engage in transactions.

How DeFi Differs from Traditional Finance

Although many financial services are now facilitated by technology, they are still dependent upon the financial system that was established in the 20th century. Mainly, banks and other financial services companies must facilitate and authenticate every electronic transaction, all while navigating multiple jurisdictions, financial markets, and global financial standards.

This creates a significant amount of friction for financial institutions and their customers. It also results in a high-cost threshold for purchasing financial products and ensures that certain cities and regions act as financial hubs. 

As such, anyone living in or near a hub has easier access to financial services and products than those living in other areas, even with the widespread availability of high-speed internet. Although the traditional finance system served businesses and countries well in the 20th century, it also created widespread inequality. Under the old system, many regions and demographics still have better access to financial products than others.

DeFi leverages technology to not only facilitate transactions but also to decentralize financial markets and eliminate these hubs. The scope of the DeFi method even extends beyond blockchain technology. Although it is still in the beginning stages of its evolution, innovative and open DeFi solutions are helping finance customers democratize financial products and access DeFi networks safely and securely from anywhere.

The Benefits of DeFi for Digital Asset Consumers

The key benefit of DeFi for digital asset consumers is that it addresses most of the problems inherent in the traditional financial system, many of which are prohibitive.

According to the Harvard Law School Forum on Corporate Governance, DeFi provides a solution to five key problems. These are “centralized control, limited access, inefficiency, lack of interoperability, and opacity.” To address these problems, “DeFi seeks to build and combine open-source financial building blocks into sophisticated products with minimized friction and maximized value to users.” ¹

That maximized value will translate into a wide range of new financial products that aren’t restrained by high fees and other points of friction. These products go far beyond cryptocurrency trading. DeFi customers will be able to acquire loans, invest in interest-bearing accounts, and conduct much cheaper and faster financial transactions without any paperwork or minimum transaction requirements.

Individuals and businesses will no longer need to rely on the oversight of large banking corporations and other institutions to access financial products, either. Most importantly, every transaction is transparent and immutable thanks to the use of the consensus algorithms inherent in the network. 

For experienced investors, DeFi holds immense promise through the process of tokenization. Blockchain protocol includes robust “smart contract” capabilities, which are already being used to issue digital token assets in the form of cryptocurrencies. 

Many prospective investors are already exploring how tokenization can provide exposure to other assets, be they digital or physical. For example, tokenization can be used to collateralize assets like gold, fiat currencies, and even real estate and artwork.

How EQIFI Democratizes Financial Products

There are several platforms available to help consumers access DeFi networks, but many investors are still wary of DeFi platforms due to the potential for poor optimization and faulty protocols.

As such, EQIFI is positioned to become an industry world leader in decentralized finance. It’s powered by EQIBank, a licensed and regulated global digital bank that supports innovative approaches to building a more interconnected financial world. Indeed, EQIFI is the first DeFi platform powered by a licensed and regulated bank.

EQIFI is a decentralized protocol for pooled lending, borrowing, and investing for ETH and ERC-20 tokens, including WBTC, Stablecoins, and others. As a uniform platform for DeFi products, it provides an alternative to many traditional financial products. The protocol will even include features like fixed-term products, variable rate lending products and interest rate swaps as well as access to multi-currency bank accounts and credit cards.

Are you ready to harness the power of EQIFI? Sign up for launch updates today.