How DeFi Can Disrupt the Existing Central Financial Order
Decentralized Finance (DeFi) stands in an interesting place today. This innovation-led revolution that has been moving underground over the years has begun to make its impact felt around the world, capturing the attention of everyday consumers and Wall Street veterans alike. In the next ten years, DeFi is expected to disrupt the existing financial order in the markets to create an inclusive financial culture.
In the past few years, the DeFI ecosystem has enabled financial services primarily such as borrowing, lending, and trading for users, similar to those provided by legacy financial institutions or Centralized Finance (CeFi). What makes DeFi stand out is the fact that DeFi platforms are built on top of blockchain protocols, making them paperless and efficient. A distributed ledger system makes data immutable, irreversible, and provable with verifiable encryption, ensuring transparency.
Besides blockchain, the underlying smart contract technology allows for peer-to-peer transactions without third parties such as banks, insurance companies, agents, exchanges, or brokerages. Taking an example from the insurance industry, if a user chooses to use any service through DeFi, the journey will be completely different. A smart contract will automate the process, eliminating unnecessary paperwork and complex audits. In the gaming industry, for example, players can play for profit, control ownership of assets, and generate revenue streams led by creators. Other real-world use cases include tokenizing real-world assets and pledging collateral for loans.
In the DeFi space, these services are available through dApps (dedicated applications), many of which are currently built on the basis of Ethereum and others on Binance, Solana, Cardano, Polygon, etc. These services and products have been tested with billions of dollars and millions of users. According to DefiLlama, i the total amount locked in DeFi loan deals to reach $50 billion (4,07,970 crore) by early 2022. data set released by Emergen Research suggested that the market size could cross $500 billion (approx. Rs. 40,79,700 crore) by 2028, at a steady CAGR of 43.8 percent.
Currently, the Web3 ecosystem has more than 100 million users, of which only 15 million are accessing the opportunities of DeFi. These early crypto holders and DeFi adopters with some technical skills are enjoying and reaping the benefits. Accelerating adoption among mass market users will require several key issues to be resolved.
Still in the process of evolution, the current DeFi ecosystem clearly has room for improvement. The key to the next big growth story is in ease of use, and the industry may look to address several areas, including discovering, exploring, and implementing different opportunities in DeFi. Another area could be data-driven evaluation of opportunities in terms of rewards, risk assessment, social ratings, and reviews, and integrating into one platform with an easy-to-use interface.
Usability can be improved by removing the complexity of the chain and providing one-stop solutions to ensure simple buying and selling processes, with easy traceability of the goods held. The onboarding process could move to a keyless non-storage solution, while the current process involves storing and protecting seed phrases, making it more complicated for regular users.
Security requires new solutions and better information to solve private key theft and phishing attacks. Since hacks occur primarily due to security breaches, where criminals often gain access to victims’ private keys, technologies such as Multi-Party Computation (MPC) can provide higher security when MPC nodes operate in geographically distributed data centers, making security more difficult. . Here users have complete control of their assets without fear of losing the wallet.
While the above challenges are still being addressed, India’s large number of DeFi users can benefit from the growing ecosystem. India ranks sixth in the world for DeFi adoption, according to Chainalysis’ 2021 Global DeFi Adoption IndexIndia has a strong community of Blockchain developers, and the industry can also explore opportunities to leverage current and future opportunities in the Indian ecosystem.
One thing is clear: DeFi has the potential to boost our already vibrant tech industry, creating more ways to earn money and create jobs. Our developers have the ability to build products and applications that may cater to audiences not limited to India. Developers, developers, and startups in the Fintech and Web 2 space are already warming up to the opportunities and are ready to change or expand their skills through self-development.
Overall, there is excitement and enthusiasm among people for digital goods, and if we can channel this energy, we can lead a distributed revolution. And let’s not forget DeFi’s core promise of creating greater financial inclusion and banking for the unbanked.
The author is Senior Vice President, CoinDCX.
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