DeFi or Decentralized Finance is a term used to describe blockchain and banking. In modern times, cryptocurrencies are some of the most popular investment options. DeFi allows investors a wide range of banking services such as savings and borrowings, but this time on the blockchain.
DeFi is long talked about being the future of banking. But why is that and how does it transform it? Well, let’s see.
A New Ecosystem
Finding an alternative solution to the traditional banking system is a thought that has come across everyone’s mind. Simply said, modern banking isn’t fair. Rates are high, unfavorable, and services cost a lot of money.
The blockchain has been talked about the solution to that ever since Bitcoin came around in 2009. Back then, we didn’t know anything about it, and terms like DeFi were a decade away from even being talked about. Nowadays, DeFi can help transform banking by introducing a completely new ecosystem.
Over the years, the DeFi ecosystem has grown exponentially. Not only that but billions of dollars are invested in it. With new technologies, cryptocurrencies, and support for projects, the DeFi ecosystem is one of the most active in the whole crypto space.
A New Currency
Many crypto enthusiasts are bullish about the fact that cryptocurrencies can replace fiat currencies. While that does seem like an impossible task, cryptocurrencies can be used in modern banking. We’re already seeing the many DeFi protocols that enable users to borrow and lend money.
With much more favorable rates, it’s only a matter of time before more people look to acquire loans from DeFi services. But these services have to settle on a cryptocurrency for their transactions. While no one can predict what that would be, there are a couple of notable players.
One of those is XRP. XRP is heavily used when making transactions thanks to the very low fees. Large sums of money are frequently exchanged using XRP. And with the introduction of the Flare Network, the XRP ecosystem is only going to get much bigger. If you’re interested in why the Flare Network is so important for DeFi, make sure to read this article.
A New Way Of Banking
DeFi is solely focused on changing traditional banking. It poses a great threat, and that threat is only going to get more real as new technologies are introduced to the ecosystem.
With DeFi, users do not require a middleman to perform a wide range of services. Since a bank is a middleman when sending or receiving money, DeFi can change that while also being scalable and safe.
One of the most important technologies in DeFi that help transform traditional banking is smart contracts. Smart contracts effectively execute blockchain protocols. The purpose of smart contracts is to automate a particular agreement.
Much like going to the bank, you agree to the terms when accepting a loan or sending money. With smart contracts, the DeFi ecosystem will have the much-needed validity.
They’re a simple If/When programming statement that executes when certain parameters are met.