The term finance, at its core, has been evolving every single day. And because of its evolving nature, these changes unwantedly have introduced a number of problems, hidden charges, the introduction of intermediaries, increased regulatory requirements, and many more parameters. Now, the thing to note here is: do the actual users who are highly dependent on this financial structure, are they really aware of these changes? On one hand, the financial firms obviously do their best job to increase awareness but let’s say a small shop vendor, do they really have the resources to get this knowledge? Even if they have the resources, are they skilled enough to accumulate them all?
In a broader sense, we would agree that the choice is NO… The common audience, anyways, wants to have his financial needs completed, based on which they start paying to the introduced intermediaries or the third party. As a result, every common force starts paying more than what they are supposed to pay. But hold on, this is only Phase One…
Understanding the Problem Statement
Let’s take another example that could best suit what I am trying to pinpoint here. So, John Doe, a commoner, goes to a bank seeking some personal mortgage loan, and the first thing he hears is that the interest levied upon the personal loan is 14%… WTF!!! It means that based on the amount John is taking a loan for, he would need to pay an extra 14%… Too high, isn’t it? To this, taking into consideration that John has no other option, John says, okay, fine, let’s start processing to which the employee says, you can foreclose the mortgage after a period of 6 months, but there will be an additional 3.5% of the entire principal charge levied as a foreclosure. Wow, said John as it struck hard for him! Now, John calmly says, let’s start with the due process. Towards the end of the process, the amount of money John received was less than the loan amount wherein additional mortgages charges were levied, and that made John furious, but he has to gladly accept it as that’s what the bank intermediaries and regulators have set the rules for. Now, a simple question from us… Is this the financial structure you really want to have???
The centralized institutions, too, don’t have any authority. They have to follow the rules & regulations made by higher-ups, national and local governments. The governments also are helpless because they never really know what’s going on in these centralized institutions and need the regulations to make sure there is no wrongdoing.
This is the hard fact now where one governing body is controlling all to make sure that there is a definitive structure throughout and that it just doesn’t apply to any single individual but to all. And that’s what centralization is… In shorter terms, you don’t have any control over the value of your financials and based on what the governing body’s decision is, your financials are affected accordingly.
Welcoming Defi
To eradicate the above issue, the concept of Decentralization comes into the picture. The idea behind Decentralization is that the control is taken from the higher authorities, and this is being provided solely to the individual owning the financials. This ensures that there is a high level of transparency maintained between the sender and the recipients and that the user has the authority of decision making, which in a way implements the habit of democratic participation. Ain’t that great??? My team at Kyte.One read about the reasons for decentralization day and night for the past two years, and we really felt that a change was underway, and let’s be a part of the change, and here we are.
Come gather around people wherever you roam
And admit that the waters around you have grown
And accept it that soon you’ll be drenched to the bone
If your time to you is worth savin’
You better start swimmin’ or you’ll sink like a stone
For the times they are a-changin’- Bob Dylan, The Times They Are A-Changin’
Defi Growth
Defi has been growing at an exponential rate, and it will continue to do until it has spread over the world like the Internet. It provides users with a transparent and borderless system where there are no hidden charges and users on a single exchange rate can transfer their funds to and fro in just a matter of seconds. These transactions are done in the form of hundreds of cryptocurrencies available using blockchain technologies. Trust me, Peer to Peer transactions have never been this easier and transparent. We will get into the depth of this later on, but I hope that you get a gist of the problem at least.
Today, with billions of worth stable coins tokens such as USDC, USDT or BUSD or any other cryptocurrency tokens available, as per a recent study by Business Insider, the Defi marketplace is easily estimated to be more than 800 Billion US Dollars by 2022, which is like a 10-fold growth from what was earlier. They have also sourced from Defi pulse that assets committed to Defi projects grew 385%. Do we need more data?
Taking these statistics into consideration, if I am to make an information-based prediction, the trust level between its users in the Blockchain and Defi ecosystem has gone 10-Fold, achieving nearly 1000%.
Relating the centralized flow
Now, the other day, my Ex-colleague asked me… “I use a couple of easy transaction software such as WhatsApp payment system, Google Pay, and many others where I am able to transfer funds, how is it different from DeFi?”
To which I said, the concept of Decentralization is to make sure that there are no other parties involved in between the process of you sending a payment to your peer or either you receiving a payment from your peer. The transactions that you perform are connected directly with a bank account from which money is being deducted, and then it is being sent to your friend’s account, where the app is just the facilitators.
With decentralized finance, you don’t need the middlemen in between, and just go ahead and send this to your peers in a transparent way. And, not limited to just asset trading, decentralized has set its foot in many other centralized financial services, some of which are lending, borrowing, high yielding, etc. And, trust me, there are billions of assets currently locked now in the decentralized ecosystems.
What makes Defi different and stable?
The internal mechanics based on which the Defi ecosystem is built is quite interesting. Defi is built on the blockchains, and the entire trading done for financial services is in the form of cryptocurrency, using which people can exchange their assets, trade, lock, farm their coins for higher yields, and many other things. So, once a fund is being transferred or staked or exchanged, be it anything, there are strong open-source algorithms that run behind containing thousands of lines of audited code which perform a specific activity. These rules or set of protocols are written on smart contracts, which are basically open-source where any user can come in and view what is actually going behind the scenes. Now, the kick here is that this audited code can only be viewed to maintain a certain level of transparency but in no way can be edited after the smart contract has been deployed on the blockchain.
The changes to be done on a smart contract is altogether a different topic in itself that involves the governance process. All transactions on the blockchain are public, fast, and secure. Personally, I am amazed by things going behind and have no doubts over why there is such a sudden growth of Defi projects in the current ecosystem.
Conclusion
Just like the discovery of the Internet was a game-changer, Defi soon is gonna hit every people’s needs and fulfill them in the best and safest way possible. Developers, communities, and users are trying their level best to eradicate any threats that they believe can possess to the ecosystem and have been successfully achieving this. And, when it starts taking pace, pacing from 800 Billion dollars to a Trillion Dollar market cap is just a couple of years away.
With love,
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Kyte is a suite of multichain dApps built to get DeFi to the real world. From a DeFi growth platform to a bot engine, from crypto prediction markets to bots as a service. All packed beautifully in gamified dApps.
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