[ad_1]
Decentralized Finance (DeFi) is a new movement that is fueling – and is powered by – the cryptocurrency industry. It provides a means to recreate traditional financial structures in a decentralized architecture without the involvement of governments or other financial institutions. Decentralized finance is now an umbrella term for several financial applications in distributed environments, namely blockchain.
Decentralized Finance: An Overview
DeFi aims to eliminate all intermediaries or institutions or intermediary companies that are between a payer and a recipient in any financial transaction. Currently, most of the applications classified in DeFi are based on Ethereum. Ethereum is the second largest cryptocurrency platform in the world after Bitcoin and allows people to build DeFi applications. One of the main reasons for this is due to Ethereum’s ability to handle smart contracts. Ethereum offers developers the ability to enable a transaction when certain conditions are met. This makes it a solid foundation for building any financial application in a decentralized way. Another reason Ethereum is the preferred platform for DeFi apps is because the Ethereum network allows conditional checks before executing a transaction.
There are several types of DeFi applications that have flourished in recent times. This includes decentralized exchanges (DEX), Stablecoin, decentralized lending platforms, prediction markets, and Wrapped Bitcoin (WBTC). Many industry insiders believe we can expect massive adoption of DeFi applications in the coming years.
DeFi x NFT: fueling each other
The same enthusiasm and hype for decentralized finance now extends to NFTs (non-fungible tokens). For the uninitiated, an NFT is a tokenized form of a digital asset. NFTs can be used to represent any digital asset, including finance, real estate, governance, retail, artwork, and more. NFTs are also implemented in building non-monetary blockchain applications, such as CryptoKitties. These NFTs can also help people register their artwork, such as paintings, music, or videos, to protect themselves from copyright infringement.
In order for DeFi applications to gain more traction, the community must strengthen a sense of loyalty to users, which can be achieved using NFTs. As an increasing amount of capital flows into various sectors, NFTs can act as a guarantee to ensure that decentralized finance is safe. Both NFT and DeFi create a collective environment to provide trust and transparency in the decentralized virtual space. Both NFT and DeFi socially fuel decentralized financial aspects by providing trust, transparency and collateral to execute financial transactions on a blockchain network.
NFTs identify embedded information on digital assets using smart contracts. They are used not only to uniquely identify ownership of digital assets, but can also be used for trading purposes. Both of these qualities help NFTs fuel the rise of DeFi. On the other hand, decentralized funding applications will need the fungible and non-fungible token characteristics for their global adoption.
Decentralized Finance: The Next Big News?
Anything that can be tokenized in a decentralized environment can end up as a DeFi application. Considering the growing need for trust and transparency in finances and the increase in the use of blockchain, decentralized finance could soon be the next big trend in the IT world. Furthermore, DeFi can bring safe and secure financial services to users who do not have access to traditional financial services. This not only makes the service more accessible, it also makes it frictionless globally.
Featured Image: Shutterstock
Post Views:
2
