One sector of the decentralized world seems to be blooming right now…DeFi.
Despite it being only two years old, the decentralized finance sector is giving rates as high as 8% for deposits. According to our recent research, MakerDAO, the top DeFi dapp, has an average of more than 350 daily active unique wallets and is the top loan contract platform in the digital currency arena.
So, what’s DeFi?
DeFi, or decentralized finance, is a product of blockchain technology. The aim is to extend the benefits of decentralization to the banking space.
It can offer an alternative to traditional loans, savings, insurance, and trading sectors. Fundamentally accommodating anyone with access to the internet.
In sectors where centralization and decentralization are combined to create unique products, DeFi can be referred to as open finance or distributed finance.
It is the second most important blockchain innovation after Bitcoin and is eventually going to be as disruptive.
Ethereum dapps are synonymous with DeFi, having various open financial platforms in payment, lending, trading, derivatives, and prediction markets.
Average daily active unique wallets have increased by 7% in January 2020. The user base has also increased significantly in the second half of January, reaching around 1,400 users.
You can check out our step to step guide on getting started with DeFi products.
The advantages that DeFi offers
Open Lending Platforms
Open lending platforms have received the most user attention of all open finance protocols on Ethereum.
MakerDAO has had the most significant impact on this sector, followed by Compound. Decentralized public lending platforms have many advantages over traditional lending. They allow the use of digital assets as collateral and their processes are secured by smart contracts. Enabling instantaneous transaction settlements.
Since DeFi eliminates the use of third-party players, open lending loans have affordable interest rates and attractive repayment periods.
Permissionless Finance
World Bank data shows that close to 1.7 billion people globally are unbanked. Excluded from the traditional banking system because they lack the prerequisites for banking. Such as good credit scores or identification documents.
DeFi platforms such as MakerDAO allow anyone with an internet connection to access baking services such as lending. All they need is access to crypto-assets such as Ethereum that act as collateral.
Access to Different Forms of Assets
DeFi ensures that users can access a variety of capital beyond assets that are exposed to government capital controls.
Wealth can be stored in stable DAI that mirrors the value of the Dollar. Thanks to its over-collateralization feature with ETH.
Investing Advantages
Dapps such as Dharma or Compound enable lending of crypto assets to borrowers to facilitate the growth of capital. Via favorable interest rate earnings.
They offer high interest for savings. A godsend in an age where traditional savings account interest rates are on a downward spiral. As an illustration, both Compound and Dharma now offer yield rates of 4% on USDC and DAI deposits. While according to the FDIC, traditional savings accounts only provide an interest of 0.09%.
Further reading
Check out – Axie Infinity and Uniswap: Gaming meets DeFi – and get a better idea about how it’s possible to earn whilst playing decentralized games.
