DeFi flourishing in 2021: insight into technology and use cases
Decentralized finance and blockchain are trends in 2021. As technology is poised to revamp industries, it is time to learn the examples of DeFi for business.
DeFi or decentralized financial services is one of the most debated topics of 2021, which draws the attention of market analysts and futurists. Whether you are into cryptocurrency or not, you probably have heard about Bitcoin, Ethereum, and decentralized finance penetrating many industries.
The preceding year, the DeFi market experienced the rise of the total value locked (TVL) from $687 million to over $14 billion by the end of 2020, and the expansion didn't stop there. Such growth had been triggered by rapid innovations on the market and the crypto boom.
But what is DeFi? What is that large-scale impact it has on the financial services sector?
Definition of DeFi
DeFi is the technology behind decentralized payments that fuels financial services operating with the blockchain. The system works based on public programmable blockchains enabling independent payments that don't involve intermediaries, aka banking and financial organizations.
The new financial service uses smart contracts and peer-to-peer agreements signed automatically by buying and selling, or lending participants. That means transactions do not require the involvement of banking platforms, lawyers, or any other third party anymore. DeFi applications (DApps) may serve many purposes, including consensus mechanisms, decentralized decision-making, information recording, and more. With DeFi, organizations could significantly improve operational efficiency, reduce costs, and provide access to financial services for all.
The aforementioned key advantage of DeFi results in TVL continuing the growth in 2021, and there will be more cases of successful DeFi implementation.
How DeFi benefits different industries
There are several ways DeFi could potentially disrupt everything from banking and insurance to supply chains and healthcare. The technology may potentially save organizations billions of dollars by reducing transaction costs and dramatically improving efficiency.
Banking and finance
Because of the complex network of banks and financial intermediaries, completing payment operations could take up to seven days. By using blockchain, organizations could drastically decrease transaction time and cut down on expenses. Besides, banks could no longer charge markups for moving money around, as blockchain-based operations do not require mediators to participate.
Insurance fraud is pretty widespread, which might lead to service providers suffering $40 billion in yearly loss, handling claims, especially during the pandemic. Smart contracts may assist in automating claim handling and underwriting of policy. Likewise, blockchain can help detect fraudulent activities if used as a distributed registered across industries containing plenty of consumer data.
Supply chain providers have to process large amounts of records, data on goods location, quality, certification, and other information needed to manage transfers more effectively. The decentralized ledger technology could provide consumers greater transparency about a product's origin and enable access to the data that conventional supply chains might keep private.
The distributed ledger technology is disrupting the medical records industry by creating immutable records of patient data. Patients could have control over their healthcare information, which would lower healthcare costs and help avoid fraud. With the technology, healthcare providers could expect changes in how healthcare is financed.
DeFi use cases by leading organizations
DeFi is poised to revamp many traditional approaches, and here are some examples proving the potential of the technology.
This crypto-based financial instrument for yield farming is designed to take in crypto funds and issue crypto-based bonds. The SYNC token allows generating passive income by creating a crypto bond. The bond is a non-fungible token based on the Ethereum blockchain, and it can be traded on secondary markets. This type of bond is always paired with a certain amount of liquidity tokens.
Chainlink is a decentralized network of nodes serving to gather real-world data and information for smart contracts. The network is reinforced by secure hardware that makes all the processes more reliable than in cases of employing a single centralized source. Chainlink connects external sources of data and blockchain-based smart contracts.
Kyber is a decentralized exchange that allows users to access liquidity reserves and trade cryptocurrencies by connecting directly with market participants. With Kyber, traders may use liquidity pools held within smart contracts to connect and send funds to the network to get back different assets. Kyber has an advantage over other ecosystems as it creates a symbiotic relationship between users and maximizes the size of liquidity pools.
From a long-term perspective, the adoption of blockchain technology could allow businesses to increase in-house revenues. In this environment, DeFi will be in a great position to succeed in the global blockchain-based economy.
For stakeholders, the best way is to employ DeFi gradually as per business needs across multiple industries. Over the long term, DeFi has a bright future ahead of it, with many more catalysts for organizations to further disrupt traditional approaches. DeFi is a new way to benefit from and invest in a solution that would benefit consumers, businesses, governments, and society as a whole.