The world of Finance is rapidly evolving. With the rise of blockchain, the technology is going through another revolutionary phase. This is effectively cementing the transformation of the internet from being one of information to one of value. DeFi, or Decentralized Finance, is at the forefront of this transformation. To many, it’s just about providing liquidity, but it’s far more than that.

Since the legendary Medici Bank’s establishment in 1397, the financial structure has stayed intact. On the other hand, financial services remain unchanged despite software developments and the internet. While consumer expectations are shifting, financial institutions have responded with cosmetic innovations such as improved user interfaces and more excellent online products.

In contrast, several other businesses have seen complete disruption, including retail commerce, media, and hospitality. In the generation of rapid innovation, we will also see the traditional finance model giving way to new and better-operating methods: DeFi.

DeFi, or open finance innovation, is the game-changer in financial history. It is the new paradigm for how institutions should deliver financial products and services.

What is DeFi

Decentralized Finance, also known as (DeFi), describes financial applications built on top of public blockchains geared toward disrupting financial intermediaries.

DeFi automates centralized manual, inefficient financial services by converting them into smart contracts, which are blockchain-based applications. For the first time in history, markets do not require centralized financial intermediaries, as smart contracts connect buyers and sellers directly.

Several devastating historical incidents have demonstrated the effects of financial centralization, including the 1929 Black Friday, the 1989 S&L Scandal, the GameStop Stock Scandal, and the 2002.com crash.

Most of us can testify to this from our personal experience with the 2008 financial crisis, triggered by centralized Wall Street goliaths controlling the banking sector and refusing to keep their end of the bargain.

Do you notice the pattern here? Out of greed, centralized organizations have deceived the public, pushing us to invest our hard-earned money only to haul the rug out from under us. This concentration of power creates victims, obstructs accountability, and slows down evolution and innovation.

In a nutshell, the goal of decentralized finance networks is to distribute power among users. It’s a platform that makes financial products easily accessible to everybody without the corruption that comes with a centralized agency. Decentralized money is a game-changing and vital step toward actual financial freedom for the people.

The next step is to create an ecosystem that enables people to use their money the way they want. Imagine a world where you can borrow and lend without going through a centralized authority. This is what DeFi offers: A fair, open, and accessible financial system to all.

Why is DeFi Scaling so Fast?

We have seen an emergence of fintech businesses in the last decade, but they are all built on top of the existing finance system. Financial product and service development have historically been a top-down process dominated by a few large financial institutions such as asset management agencies, commercial banks, and insurance corporations.

DeFi is a bottom-up innovation that takes the component of centralized Finance and substitutes human trust with math-based trust, paperwork with smart contracts, legal enforcement with cryptographic enforcement, and third-party audit with open source code and a public ledger.

Additionally, there is the issue of collateralized lending services. DeFi members can borrow up to 85 percent of the value of their deposited crypto instantly, with no credit check and no interest. When you examine the annual rise of premium cryptocurrencies such as Bitcoin or Ethereum and overlay DeFi services, you can grasp the magnitude of the disruption that lies ahead. DeFi promises to be 10x better, faster, and cheaper than today’s financial services.

Decentralized Finance will do to centralized Finance what the internet did to information. Consider how quickly information is shared on social media today around the world. What if money is transmitted at the same rate as trades get executed and settled?

How Does DeFi Work?

Users interact with DeFi through dapps (“decentralized apps“) software. Most decentralized finance applications are built on Ethereum, the world’s second-largest cryptocurrency platform, which sets itself apart from Bitcoin by allowing users to create and execute smart contracts.

Dozens of DeFi applications run on Ethereum, with smart contracts at their core. Ethereum 2.0, a forthcoming upgrade to Ethereum’s underlying network, may help these apps by addressing Ethereum’s scalability issues.

Let’s look at DeFi’s most popular applications and how they work.

Lending platforms– one of the first and most popular DeFi applications, decentralized lending platforms allow users to borrow and lend cryptocurrencies without a third party. DeFi lending is collateral-based, which means that to get a loan, a user must put up collateral, which is frequently ether, the Ethereum token. That means users don’t have to reveal their identity or credit score to get a loan, which is how traditional loans work.
Stablecoins– stablecoins are cryptocurrencies designed to maintain a stable value. The most popular stablecoin is Tether, a coin pegged to the US dollar. Tether has been controversial because of its close relationship to Bitfinex, a cryptocurrency exchange accused of fraud. Other stablecoins include Dai, which is pegged to the value of the Swiss franc, and USD Coin, also pegged to the US dollar.
Decentralized exchanges (DEXs)– decentralized exchanges allow users to trade cryptocurrencies without a third party. DEX is an algorithm (computer code!) that enables traders to trade 24 hours a day, seven days a week. Users not only trade or obtain liquidity through DEXs, but they can also seed this liquidity pool with their assets.
“Wrapped” bitcoins (WBTC)- wrapped bitcoins are Bitcoin tokens backed by ether and used directly on the DeFi system. WBTCs allow users to earn interest on the bitcoin they lend out through decentralized lending networks.

New DeFi concepts have sprung up around these apps, such as “DeFi Credit,” a way of earning interest on your cryptocurrencies without locking them up in a lending platform. Other DeFi concepts include;

Yield farming– here, users scan through multiple DeFi tokens in search of prospects for more significant returns like charging interest when they lend idle their assets. In short, it’s a way to make more crypto with your crypto. This is for experienced traders who are willing to risk their assets.
Composability– DeFi apps are open source, which means that anyone is free to look at the code that powers them. As a result, anyone can use these apps to “assemble” new apps with the code as building blocks.
Liquidity pools– Any user can deposit their tokenized assets (assets converted into a smart contract) in this pool and earn fees as a liquidity provider, no matter how modest the amount is. Liquidity providers can make benefit from the underlying DeFi platform in addition to fees, such as the interest for lending or governance tokens for the protocol, which have a tradable value.

What are the Benefits of DeFi?

One of the notable benefits of DeFi is that it enables the development of interoperable financial applications on public blockchains. This means developers can build products that work with any blockchain rather than being restricted to a single platform. As a result, DeFi is seeing rapid growth as developers race to create new products and services. Other benefits include;

Pseudonymous -You don’t have to give your name, email address, or other personal information.
Flexible– You can relocate your assets anywhere at any moment without obtaining authorization, waiting for lengthy transfers to complete, or paying high costs.
Increased security– Decentralized applications are much more difficult to hack or steal since there is no central point of failure. This makes them perfect for storing valuable assets such as cryptocurrency.
Reduced fees– DeFi applications are often cheaper than traditional financial services since they do not rely on centralized intermediaries.
Increased transparency– DeFi applications are transparent and auditable due to their use of public blockchains. This makes them ideal for financial transactions that require trust.

Why Should You Invest in DeFi?

With global markets volatile and traditional finance institutions giving lower monthly yields, it’s only a matter of time until DeFi becomes a go-to investment option for individuals and businesses alike.

Being an early investor in a large-scale disruption pays out handsomely. Revix (a Cape Town-based investment platform sponsored by JSE-listed Sabvest) has created an easy-to-use and customer-friendly interface to all things crypto to facilitate this early access.

Revix announced a new themed DeFi Bundle on Friday, March 25th, giving customers access to the cryptocurrencies shaping the future of Finance.

The DeFi Bundle encompasses a number of the world’s most popular DeFi tokens into a single, convenient investment. The DeFi Bundle gives you access to cryptocurrencies from the world’s leading decentralized exchanges, loan services, and payment networks.

The Bundle automatically rebalances on the 1st of every month. It buys and sells each commodity to take advantage of the opportunities offered by the most recognized DeFi coins.

This dynamic, fully automated strategy makes investing simple, allowing you to maximize your returns while conserving time.

Conclusion

For many people, decentralized Finance is unsettling since it contradicts traditional government structures. However, the truth is that DeFi is inevitable and will play a significant role in the future of our economy.

Always keep in mind that cryptocurrencies are high-risk investments. You should not invest more than you can afford to lose. You should evaluate your level of experience and investment objectives and, if necessary, seek independent financial advice before investing.

DeFi: Your Window to The Next Financial Revolution