Moving to the financial revolution another phenomenon that is gradually gaining momentum is the Decentralized Finance or DeFi. Because it cuts out intermediaries, increases transparency, and increases financial inclusiveness, DeFi is revolutionizing how individuals approach financial services.
Defi can be understood from the example of a vending machine. With the vending machine, we can directly get the soda or snack we want without the involvement of a shopkeeper. In the same manner, we can use DeFi applications without any intermediaries.
Decentralized finance turns complex financial activities or products into automated procedures. These tasks would otherwise require you to visit banks or any other institutions. Can you imagine the areas where DeFi can be used? Not only in financial transactions but also many products are using it. DeFi is helping to merge the physical and virtual worlds.
This article will explore the ongoing trends with DeFi along with the future risks of this technology.
Current DeFi state
Have you ever searched about the DeFi market? If not then I am in your services. You will be surprised to know the revenue of DeFi market. Statista research shows that the revenue is expected to grow up to US$37,040.00m in 2028. This is an annual growth rate of approximately 9 percent which is amazing.
In this technologically advanced world do you know how to get involved in DeFi? It’s as easy as pie. You just have to set up a wallet that is open to DeFi applications and then add the cryptocurrency to your wallet. Last step would be adding crypto to DeFi app and there you go! Are you wondering which platform to choose for this? You should consider platforms that accept LTC payments along with other cryptocurrencies as well. Look for a platform which provides smooth sailing through the process in no time.
3 Trends that are driving the future of DeFi
DeFi is a blockchain with DLT technology. DLT in layman’s terms is distributed ledger technology which means the data is available to anyone who wants to access it. You must be thinking about how DeFi is beneficial to you. Well it’s simple with the middleman cut out you can have direct control over your money. Isn’t it great?
Following trends will provide the roadmap of DeFi:
1. Interoperability Between Blockchains
Have you thought about what possibilities be unlocked if DeFi can operate within different blockchains? DeFi operates on single and specific blockchains that limit its functionality to that specific native token of that blockchain.
Many interoperability solutions have been made through which different blockchains can communicate. One of the examples is wrapped bitcoin. This trend has also minimized the chance for centralized exchanges so you can totally skip them and directly transfer crypto through cross-chain bridges.
2. Layer-2 Scalability
Can you guess what made DeFi look for scalability? Let me tell you. With the taking off of Defi there was a demand for the exchange of tokens but DeFi application was not ready for such a huge amount of transactions. These excessive transactions made it congested and slow. This in turn made the transaction time slow and affected the user experience.
This problem made DeFi look for layer 2 along with layer 1. So now L2 is used for all the congested transactions and L1 is free to take action on security and settlement functions.
3. Evolution in regulations
Can you think of any authority to go to for any fraudulent activity related to DeFi? No, you can’t think of any because regulatory evolution is needed but has not been done. DeFi is vulnerable to hacks and cyber breaches.
Governments are concerned about the illegal activities and taxable transactions in DeFi. but it’s very difficult to trace due to the lack of transparency of individuals in DeFi.
DeFi 2.0
Do you know what was DeFi lacking that the need arose for DeFi 2.0? Long-term liquidity and business-to-business (B2B) focus is the cornerstone of this new generation of DeFi. DeFi 2.0 is not to replace the DeFi 1.0 but rather to support and make it more evolved.
Challenges and Concerns for DeFi in the Future
Being an application DeFi is made up of software. As you know there are loopholes in software and even if the software is made with utmost precision hackers can find the weak link. The challenge is to make a DeFi application free of these risks
What if you traded in DeFi application and it crashed the next day? You will be bumped right. Due to the great liquidation of the crypto market it’s a very risky business and you have to be shrewd to access it.
Sum up
DeFi is a nuanced technology and the interest of financial institutions and governments in it can make it boom in few years. If everything goes well bank services will be automated. The possibilities with DeFi are unimaginable and it will play an instrumental role in the metaverse enabling transactions between the two worlds.
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