Decentralized Finance have too much blockchain ideas for entrepreneurs to absorb
The core principles of the financial system run around the three- part cycle of savers, financial institutions, and investors. Savers entrust their money to financial institutions such as banks, which in turn lend it to investors who roll the borrowed capital to profits and gains. Investors then pay off loans with interest. Financial institutions earn from the interest paid and share a portion of it back to the savers. The burden of complexities surrounding this three-part working relationship mostly fall heavily on the part of the savers who are losing the value of their savings caused by yearly inflation while gains on interest remain flat or near to nil. Costs on processing and time consumed are exhausting that many remain lukewarm or refuse to avail of the financial system’s services, even to opening a simple bank account. The unbanked and underbanked constituting 2.5 billion of the world’s population, as World Bank’s Global Findex found out, is a clear reflection of this.
Blockchain unblocks the chains
The wonders of blockchain technology defied the Jurassic ways of present financial systems and introduced a new way of doing business in the form of DeFi, or decentralized finance. DeFi’s disruptive force ripped iron curtains apart to meet eye to eye at ground level with the everyday consumer, handing certain empowerment and control over their own finances for the first time.
The open financial system that is DeFi
The idea of an open financial system calls for an interoperable system of doing finance in a transparent, standardized, accessible, and inclusive way. Bitcoin and other cryptocurrencies took this blockchain idea to reality virtually eliminating a central controlling authority and introducing the distributed ledger technology DLT, anonymous and immutable at best. Compared to legacy systems, transactions are at breakneck speed.
From this cryptosphere emerged open financial tools such as algorithmic indicators that aided crypto traders to an intelligent decision before jumping into the market tussles. Other than decentralized prediction markets and APIs, these tools also provide security tokens and the secured loan services, which is taking a big market chunk by storm.
Much as we are eager to transition to a whole new world of open financial tools in the name of modernity, there is still much work to be done in the expansion of DeFi infrastructure to maximize its benefits. What is possible now is a hybrid ecosystem where open blockchain protocols are integrated into traditional systems until maturation is achieved. We cannot imagine yet an open security data compromising sensitive personal information available to any prying eye aside from creditors facilitating verifications and affordability checks. Fintech companies are now compliant to the Anti-money laundering and know-your-client directives to keep data sovereignty intact and digital assets protected.
Entrepreneurs have a lot to internalize about, and getting excited will get them started. We have already seen and experienced how putting structures for everyone to follow don’t always make things right, getting the customer right at the centre and then build services around them is surely the better way. The success of full convergence of technology and traditional infrastructure will only be realized once the end user is put into the picture.