Traditional financial markets are characterized by their enormous centralization. This implies that decision-making authority is concentrated in a small group of people, in this case, financial and government entities. It basically implies that our economy, both personal and collective, is controlled by external agents.
To break with this, decentralized finance has emerged, a new movement that brings with it great new possibilities. DeFi has been accompanied by opportunities that banks have not been able to offer, aside from excessive fees, financial exclusion and irregular terms.
In this sense, the million-dollar question is: what will be the future of these new decentralized finances?
Origin of DeFi
Decentralized finance has everything to do with the cryptocurrency market. So it is not surprising that its origin dates back to the appearance of Bitcoin. This was the first DeFi platform in the world, putting into practice ideas that had already been launched years ago.
In 1995, Nick Szabo presented an idea ahead of its time, in which he defined the concept of smart contracts, offering the first glimpse of what the new decentralized finance could be.
This idea was not fully configured until the arrival of Ethereum in 2014. This new platform would allow developers to create everything they could think of on a blockchain thanks to smart contracts. All this that started with an experiment has turned into a movement that has been configured with the name of decentralized finance.
Thus, new liquidity markets, decentralized applications and new decentralized exchanges (DEX) have been configured, I feel all this is only in principle.
What is DeFi?
DeFi is the name that defines the world of decentralized finance. This technology seeks to develop a financial system with a high degree of transparency and decentralization. This new system would allow people to exchange digital money quickly and safely. DeFi wants to break with traditional financial systems.
Parallel to DeFi, FinTech arises, which is included in a more centralized model. They work based on Blockchain technology and Smart Contracts or smart contracts.
DeFi Characteristics
- High level of decentralization. They act without the need for a bureaucratic authority to have a voice and a vote so that the operations can be carried out. The parties that make up each exchange or transaction are the people authorized to make decisions without intermediaries.
- It works based on blockchain technology and smart contracts.
- They are very secure financial technologies, as they use powerful cryptographic techniques to ensure that the platform, their accessibility and their use are controlled by authorized persons. It makes available to people a tool that allows them to execute various economic operations without the need for a third party to be involved, in a safe, direct, fast and decentralized manner.
- It is a fairly transparent technology since it is built on free software, so each line of code can be audited. Access to this type of platform has no borders, so anyone can access its services regardless of where they are.
- Universal access. Anyone who wants to be part of the world of decentralized finance can do so, regardless of where they are in the world.
The ultimate goal of DeFi is the use of technologies to create new, more advanced financial models, and thereby boost the world economy.
The future of DeFi
Decentralized finance has become the gateway for many new functionalities. Technology is useless if it cannot be put to use. That is why DeFi has been configured as a key element to carry out numerous operations. An example of all the cases that we can give to DeFi is banking-type services.
DeFi technologies, being financial systems, offer a large number of “banking” type services. They are very obvious use cases of these decentralized finances, as they allow banking operations such as the issuance of digital currencies, loans or insurance.
Some DeFi protocols allow users to make investments and also carry out other operations such as the issuance of stablecoins or stablecoins. A stablecoin is a digital asset pegged to “stable” fiat currencies like the dollar or euro. This digital currency aims to guarantee the stability of the exchange rate in the market, reducing the volatility of unbacked cryptocurrencies such as Bitcoin.
There are many use cases for these new decentralized finances. Thus, they are configured as a movement that allows one to request loans, carry out banking operations, tokenize assets, or the creation of decentralized exchanges (DEX), among others.
This fact in itself already shows that this new financial movement is here to stay. DeFi is advancing at breakneck speed, and new concepts have been created in relation to this technology which is further proof that the future of this finance is in today's markets.
DeFi 2.0 is set up
This version of decentralized finance has already taken the industry by storm. It is configured as a new improved version of the current DeFi concept, which has addressed the main existing weaknesses in traditional finance and is taking advantage of the strengths to present new alternatives to users.
Unlike the initial version, this technology is focused on a more business environment, specifically B2B organizations. Its new protocols aim to build on the success of the first generation of dApps to build a new range of decentralized applications.
Aggregated Finance is one of the platforms that is taking advantage of this movement and has been launched to solve key problems through the existing DeFi ecosystem. Features such as advanced governance mechanisms, DAO-controlled voting, and passive income for holders are set up, and above all, a new path towards the new DeFi 3.0 revolution has been marked.
New DeFi 3.0
DeFi 3.0 arrives as an innovation on the way. It is focused on providing decentralized finance as a mass adoption infrastructure and service technology. The objective of this project is to break with all the traditional centralized systems to establish a completely decentralized ecosystem.
This new version would have much to do with something that is also being talked about a lot lately: Web 3.0. This novelty is configured, in this way, as a term that refers to the evolution of the World Wide Web towards a more intelligent network, in which the exchange of data and the use of decentralized applications are encouraged. The new web will be powered by blockchain technology and smart contracts and will be characterized by being more secure, private and scalable.
In the end, the objective of this new version of decentralized finance is focused on offering what is the essence of decentralization: full control over all investment decisions in the hands of the user.
Conclusions
DeFi arrived to establish itself as a much more transparent, secure and efficient alternative to the rest of the traditional financial systems. In this sense, we can say that they have broken into the world of finance in the best way since the possibilities that came with their creation are and will be abundant.
All the power that was concentrated in the hands of a few is now distributed, and the user now has something with much more value: options. If you want to request a loan or carry out a banking operation, you are no longer limited to traditional financial institutions.
DeFi has come not only to stay but to completely transform the financial market.
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