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 governmental entities. It basically implies that our economy, both personal and collective, is controlled by external agents.
To break away from this, decentralized finance has emerged, a new movement that brings with it great new possibilities. DeFi has come with opportunities that banks have not been able to offer, leaving aside excessive fees, financial exclusion and irregular terms.
In this sense, the million-dollar question is: what will be the future of this new decentralized finance?
Origin of DeFi
Decentralized finance has everything to do with the cryptocurrency market. So it is not surprising that its origin can be traced back to the emergence of Bitcoin. This was the world's first DeFi platform, which implemented ideas that had already been put into practice years earlier.
In 1995, Nick Szabo presented an idea ahead of its time, defining the concept of smart contracts, offering the first glimpse of what the new decentralized finance could be.
This idea did not fully take shape until the arrival of Ethereum in 2014. This new platform would allow developers to create anything they could think of on a blockchain thanks to smart contracts. All this that started with an experiment has become a movement that has been configured under the name of decentralized finance.
Thus, new liquidity markets, decentralized applications and new decentralized exchanges (DEX) have been set up, but 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 securely. DeFi wants to break with traditional financial systems.
Parallel to DeFi, FinTechs are emerging, which fall under a more centralized model. They operate on the basis of Blockchain technology and Smart Contracts.
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Characteristics of DeFi
- High level of decentralization. They act without the need for a bureaucratic authority to have a voice and vote so that operations can be carried out. The parties that make up each exchange or transaction are the authorized decision makers without intermediaries.
- It works on the basis of blockchain technology and smart contracts.
- They are very secure financial technologies since they use powerful cryptographic techniques to ensure that the platform, accessibility and use of the same is controlled by authorized persons. It provides people with a tool that allows them to execute various economic operations without the need for a third party, in a secure, direct, fast and decentralized manner.
- It is a fairly transparent technology, since it is built on free software, so every line of code can be auditable. Access to this type of platform is borderless, so anyone can access its services regardless of their location.
- 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 and more advanced financial models, thereby boosting the global economy.
The future of DeFi
Decentralized finance has become the gateway to many new functionalities. A technology is useless if it cannot be put to use. This is why DeFi has become a key element for carrying out numerous operations. An example of all the cases that we can give to the DeFi are the services of banking type.
DeFi technologies, being financial systems, offer a large number of "banking" type services. They are very obvious use cases of these decentralized finances, since they allow banking operations such as the issuance of digital currencies, loans or insurance.
Some DeFi protocols allow users to make investments and also perform other operations such as issuing stablecoins. A stablecoin is a digital asset linked to "stable" fiat currencies such as the dollar or the euro. This digital currency aims to guarantee the stability of the exchange rate in the market, reducing the volatility typical of unbacked cryptocurrencies such as Bitcoin.
There are many cases of use of these new decentralized finances. Thus, they are configured as a movement that allows borrowing, banking, tokenization of assets, or the creation of decentralized exchanges (DEX), among others.
This fact in itself 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 that are further proof that the future of these finances lies in today's markets.
- DeFi 2.0 is configured
This version of decentralized finance has already taken the industry by storm. It is set to be a new and improved version of the current DeFi concept, which has addressed the major weaknesses in traditional finance and is leveraging the strengths to present new alternatives to users.
Unlike the initial version, this technology is focused on a more enterprise level, specifically B2B organizations. Its new protocols aim to leverage 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 leveraging this movement, and has been launched to solve key problems across the existing DeFi ecosystem. Features such as advanced governance mechanisms, DAO-controlled voting, passive income for incumbents and, above all, a new path to the new DeFi 3.0 revolution has been set.
- New DeFi 3.0
DeFi 3.0 comes as an innovation on the way. It is focused on providing decentralized finance as a mass adoption infrastructure and service technology. The goal of this project is to break away from all traditional centralized systems to establish a completely decentralized ecosystem.
This new version would have a lot to do with something that is also being talked about a lot lately: Web 3.0. This new development is thus 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 goal of this new version of decentralized finance is focused on delivering what is the essence of decentralization: full control over all investment decisions in the hands of the user himself.
DeFi came 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 burst 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 used to be 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 borrow or bank, you are no longer limited to traditional financial institutions.
DeFi is not only here to stay, but to completely transform the financial market.
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