A blockchain is a secured and distributed database or ledger. The foundation for decentralized finance (DeFi) is the distributed ledger. It uses blockchain technology similar to cryptocurrencies. DeFi is built on the Ethereum blockchain. Applications (dApps) handle transactions and run the blockchain. Peer-to-peer (P2P) financial transactions are the core premises behind DeFi. In a P2P DeFi transaction, two parties agree to exchange cryptocurrency for goods or services without involving a third party. Thus, it removes third parties from financial transactions and empowers individuals with P2P digital exchanges by challenging the centralized financial system.
DeFi is a popular decentralized cryptocurrency concept and covers a range of financial services. The DeFi infrastructure and its regulation are constantly evolving. DeFi eliminates the fees banks and financial companies charge for using their services. Users hold money in secure digital wallets. Payments from P2P are made via a decentralized application (dApp) and follow the process as in the blockchain.
The components of DeFi like stablecoins, software, and hardware enable the development of applications. Individuals with an internet connection lend, trade, and borrow using software that records and verifies financial actions in distributed financial databases. A distributed database is accessible across various locations as it collects and aggregates data from all users verified by a consensus mechanism. The users can earn interest, take loans and put up their NFTs as collateral. Also, users can become liquidity providers to decentralized exchanges via DeFi apps.
Due to anonymity and a lack of accountability, DeFi is hard to integrate into the current blockchain infrastructure. Newrl being a public blockchain for decentralized finance is trying to address this issue. Its token-based equity solutions for unlisted companies enable startups and unlisted MSMEs to create tokenized equities to issue ESOPs and hence access to greater liquidity and transparency using blockchain.
The Existing solutions to it are that DeFi relies on crypto-native collateral only but most small businesses do not have any such collateral, nor do they wish to buy cryptocurrencies to run their businesses.
Unlike other blockchain wallets, the wallet on Newrl includes
- Information about the person, company, or trust holding the wallet
- Where they are located.
- Are they accredited or not?
This information is mapped to the ID and gives companies the freedom to filter users based on their locations and other criteria while creating tokens.
By leveraging key cryptographic principles of the Ethereum blockchain, decentralized finance increases financial security, transparency, liquidity, and growth opportunities, as well as supports an integrated and standardized economic system. A world of new economic activity and opportunity has opened up for users around the globe due to decentralized finance protocols like DAOs and synthetic assets. Below is a comprehensive list of use cases that illustrates DeFi’s versatility. Let’s look at a few practical cases where the implementation of DeFi has revolutionized different sectors.
- Asset Management
- Compliance and KYT
- Data and Analytics
- Developer and Infrastructure tooling
- Lending and Borrowing
- Margin trading
- Prediction Markets
- Synthetic assets
- Supply Chain Management
Though DeFi is a newer entry into the crypto world its adoption rate has risen exponentially. It has evolved in a very short time and with real-life cases of implementation, the technology offers unique leverage to individuals and businesses, no matter what kind of industry.
There are challenges but which new technology hasn’t? The speed of adoption is a reflection of the advantages it has over legacy systems and as more people and firms around the world are realizing its potential. As digital currencies expand we look forward to newer interpretations of traditional financial ecosystems virtually.