Decentralized Finance (DeFi) – The Future of Finance 2020?
In the first half of 2020, the whole world was heavily affected by the epidemic of the 19th century COVID-19, causing a great shock to global economic development. Going against this trend is that crypto companies, especially Decentralized Finance (DeFi), are continuing to innovate and grow surprisingly during the economic downturn.
What is Decentralized Finance (DeFi)?
First, to know more about Decentralized Finance, we need to understand Centralized Finance. Simply, centralized finance is a financial system developed and tested by one or a group of people in an organization. For instance, fund investments, companies, corporations or banks, major media organizations and media systems, etc.are all entities of financial aggregates. When interacting with these organizations, users have to go through many intermediary systems. For example, when the transaction occurs at the bank, we must work through a complicated transaction procedure which also consumes quite a period of time. In general, we call it “middle man”.
In contrast, we have Decentralized Finance abbreviated as DeFi, is defined as “open finance” for an ecosystem consisting of applied finance developed from decentralized technology, specifically the Blockchain platform. Today, the term Decentralized Finance is often used to describe a non-intermediary trend in the financial world.
DeFi use Peer to Peer (P2P) and the source code from software to do business and provide services, so there is no extra time wasted. That services of DeFi mount are linked to digital assets (Digital Asset), cryptocurrency (Cryptocurrency) is a typical example. Users can test their products and interact with them through Peer to peer Network or decentralized applications (Dapps).
Is DeFi potential?
With exponential growth in ecosystems, DeFi expectedly develops a 10-fold increase compared to 2019. The DeFi ecosystem has just gone through a memorable milestone when total volume Internal production (Total value lock) reached $ 4.22 billion (as reported by TokenInsight) in August 2020, despite COVID-19 outbreak tremendously affecting the global economy.
Currently, DeFi is applied in:
DeFi Lending: A decentralized money-borrowing platform that has many benefits compared to a system credit system, which allows instant transaction settlement, digital asset mortgage. There is no need to check usage history and standards and possibilities in the future. Due to establishment on the Public Blockchain network, parties participating in lending services do not need to check information and eliminate methods of identifying crypto intermediaries. The blockchain loan market helps reduce risks from partners, make borrowing more economical, faster, and reaching more people. There are some prominent decentralized borrowing platforms such as: Compcound, Maple, Maker, AAVE, HELIS, Torque, InstaDApp, Marble, DeFiner, NUO, Pool Together, Fulcrum, SYSX, Sablier, EOSREX, TOPO, Dharma, LENDF. I, etc.
DEXs – Decentralized Exchanges: A platform that allows users to transact digital assets or cryptocurrencies without intermediaries, transactions will be performed directly from the user’s wallet through a smart contract. Some decentralized exchanges get the trust of users around the world such as: 0x, 1inch, AIRSWAP, ACDEX, Balancer, Bamboorelay, SwicheoNetwork, Bancor, Dex.blue, IDEX, RELAY, BinanceDEX, LOOPRING, Curve , Fulcrum, Paraswap, TOKENLON, TOTLE, DeversiFi, dForce, Uniswap, Kyber Network, SYSX, Jelly Swap, etc.
Digital Asset Management: Digital Asset Management is a wholly or partially oriented application of client investment advice run by a financial service organization, with low transaction rates and transaction times. . There are some non-general asset management and storage applications such as Argent, Dhama, Trust Wallet, Gnoisis Safe Multisig, Portis, Dapper, Ambo, Zapper, InstaDApp, Melon, Monolith, Set, ZERION, etc.
Stablecoin & Wrapped Assets: Decentralized stablecoins – cryptocurrencies that are born with our value enhanced by a real-world asset. For example, we have Tether’s USDT anchored close to the US Dollar. We can name famous projects in the world such as AnchorUSD, DAI, HUSD, BUSD, AUGMINT, USDX, NEUTRAL, PAXOS STANDARD, pTokens, Ampleforth, mSTABLE, RESERVE, Tether, USDCoin, Terra, TUSD, Kave, etc.
Staking: A form of cryptocurrency capital contribution to receive rewards through activities on the Blockchain network, this type is similar to depositing money in a bank and being returned with corresponding interest. Staking is closely related to a Proof-of-Stake algorithm or some related variations. The following projects are examples of projects developing under this mode: Stakefish, HyperBlocks, Spark Pool, Staked, Staking Facilities, Figment Networks, STAKE CAPITAL, StakeWith.Us, STAFI, etc.
Data Services: A place where you can freely develop and build a business model on your own Blockchain network. Typical projects are DEFI.REVIEW, THE GRAPH, Dune Analytics, Amberdata, Blocknative, Elementus, DeFi, Covalent, Defiprime, Alethio, DeFi Saver, LoanScan, etc.
Infrastructure: A type of model that allows users to use smart contracts to connect data in the real world on a decentralized network infrastructure. Some example projects are developing under this model include: Chainlink, Band Protocol, Tellor, Coinbase, Oracle, Plutus DeFi, Nest, BLOCKSTACK, AZTEC, Ren, METER, WalletConnect, POA, etc.
Derivative: A project that creates a decentralized ecosystem of derivative digital assets. Projects include: AUGUR, GNOSIS, ERASURE, Helena, LIMA, Veil, NUMERAI, Laminar, OPYN, YNTHETIX, Nexus Mutual, etc.
What are differences between Traditional Financial, FinTech and DeFi?
DeFi’s introduction directly reflects its contrary to the other types: Finance and Decentralization.
Centralized and Decentralized Financial System Model
When it comes to Traditional Financial and technology products, we immediately think of FinTech applications. Most of us are already familiar with FinTech. FinTech is the fusion of technology that innovates with traditional financial methods and services. Some of the most popular examples of FinTech are applications for banking on a smartphone that replaces traditional banking, or similar applications for encrypted cash. There are many cryptocurrency platforms out there that uses a combination of centralized and decentralized control.
The difference between Traditional Financial, FinTech and DeFi is specified in the table below.
|Issuing money||The State||—||Proof of Work and Proof of Stake rewards|
|Transferring money||Cash||Revolut, Transferwise||Cryptocurrency and token transactions|
|Lending / borrowing money||Banks||Lending Club||Tokenized P2P debt|
|Exchanging assets||Exchange & Brokers, like Nasdaq||—||Dencentralized exchanges|
|Investing||Stocks, Bonds, etc., accessible through banks and exchanges||Robinhood||Tokenzed financial product (ICOs, STOs and token baskets)|
DeFi’s vigorous development in the future
2020 is considered a renaissance year for DeFi. Despite the global economic crisis, decentralized financial projects continue to grow, stablecoins are gradually gaining popularity and bringing new organizations and individuals to market. The value of DeFi tokens has increased by 200% since the beginning of the year. The opportunities for startups to use this new technology are endless, promising growth and diversification for the ecosystem. DeFi has changed the game of economics, the applications in this financial industry are coming soon, built at low cost and ready to enter the mass market. Lina Network is a pioneer enterprise in developing and applying the most advanced technologies in Vietnam.
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