What Is Decentralized Finance? And Why Is It Important.Kehinde LAWAL
Many experts believe the world would be a better place if money was decentralized, and that’s exactly what we’re seeing with most cryptocurrency(crypto).
Using cryptocurrencies like Bitcoin, Etherium etc. removes the need to depend on a single party, bank, government in other to send or receive money. It’s completely done on a peer to peer network i.e. people send money directly without the middleman, thus removing commissions and reducing transaction cost.
The technology that makes this possible is called the blockchain, and the first use case was in Bitcoin(the first mainstream cryptocurrency).
In the real sense, there are numerous other use cases of Crypto in Finance aside sending and receiving money. And that’s where Decentralized Finance(DeFi) comes into place. Such other application of blockchain in the financial transaction includes lending, saving, staking, prediction market etc.
An even broader definition of DeFi is the one given by Blocknomi, which states that “DeFi is essentially just conventional financial tools built on a blockchain — specifically Ethereum.”
I believe this is revolutionary and a completely new way of doing things. It’s so important because it helps to bank the unbanked(over 3 billion people in the world), create a fair playing ground, and reduce cost in banking operations.
3 Reasons Why DeFi Is So Important
- DeFi helps to Bank the Unbanked:Decentralized finance is getting more and more people across the world to connect to the global market. The over 3 billion unbanked population in the world(majorly Africans and Asians) can now receive quality and competitive financial services without living their country. This more like an open finance where you can connect yourself to the global economy.
You see, I always say this; you don’t need to explain Bitcoin to a native of Argentina, Venezuela or Zimbabwe. They just understand it naturally because it’s one of the few means of hedging against the hyperinflation in their native fiat currency.
- Defi recreates a fair playing ground for Financial Transactions:Majority of activities that are been carried out by banks are now been done on DeFi platforms in a more cheaper and transparent way. For instance in Nigeria, the dollar($) has two official rates N315 & N365. While the former rate is the one enforced by the Central Bank of Nigeria (CBN), the later is the official rate use in the global market.
Receiving $1000 through banks gives you N315,000, whereas doing the same on Defi platform that offers remittance gives you N365,000.
That’s a whooping N50,000 extra saving, which would have been lost if you had used the local banks.
- DeFi reduce cost in banking operations:Basically, DeFi platforms who offer lending, saving, and similar banking services do it far cheaper than banks. And this is mainly as a result of such platforms not requiring large physical infrastructures as a bank do. Most DeFi operations can be run from an online application and a head offices.
A good example of such DeFi App which I have used is Celcius Network. The platform allows you to save money and receive up to 10% Average Percentage Return(APR) or Borrow loan and pay as low as 4% average interest. From my research so far, only a few banks can offer such a low rate in Nigeria. The yearly average return on savings in Nigeria is less than 3%, and loan on the other side accrue up to 25% yearly interest.
This is what Defi Looks Like Today
To round it up, DeFi platforms are making banking cheaper, easier and more accessible to the world, and I must say that this just the beginning. A lot of new features and killer apps will be built in the DeFi ecosystem this current decade. And many of such tools and apps will compete directly with services been offered by banks.
Who will win eventually? Banks or Defi.
I will say let the time come, but I’m so certain most banks have started seeing their profit reduce right before their own eyes.
If you would be interested in saving or borrowing a loan, you should try out this DeFi App called Celcius Network.
Also, if you want to buy cryptocurrency directly to your Paxful or LUNO Wallet, you can try out the 9jaCashFlow Exchange. We guarantee instant payout at good rates.