How DeFi can disrupt centralized finance and help build a culture of financial inclusion

Decentralized finance (DeFi) is at an interesting time today. This technological innovation-led revolution that has emerged from the surface over the years has begun to make an impact globally, capturing the attention of everyday consumers as well as Wall Street veterans. same. Over the next decade, DeFi is predicted to disrupt the prevailing financial order in the market to build a culture of financial inclusion.

In the last few years, the DeFI The ecosystem mainly supports financial services such as borrowing, lending and trading for users, similar to those offered by legacy financial institutions or Centralized Finance (CeFi). What makes DeFi stand out is the fact that DeFi platforms are built on top of blockchain protocols, making them paperless and efficient. The distributed ledger system makes data immutable, irreversible, and tamper-proof through verifiable cryptography, ensuring transparency.

Besides blockchain, the underlying smart contract technology enables peer-to-peer transactions without the need for third parties such as banks, insurance companies, agents, exchanges or brokers. To take an example from the insurance industry, if a user chooses to use any service through DeFi, the journey becomes completely different. Smart contracts will automate the process, eliminating pointless paperwork and complex audit systems. For example, in the gaming industry, players can play for money, control property ownership, and generate creator-led revenue streams. Other real-world use cases include tokenizing real-world assets and collateralizing them for loans.

In the DeFi space, these services are available through dApps (decentralized applications), most of which are now built on top of Ethereum and others on Binance, Solana, Cardano, Polygon , etc. These services and products have been tested with billions of liquidity and millions of users. According to DefiLlama, Total value locked in DeFi lending protocols that peaked at $50 billion (4,07,970 crore) in early 2022. Another protocol Data collection released by Emergen Research suggests that the market size could surpass $500 billion (approximately Rs 40,79,700) by 2028, at a steady CAGR of 43.8%.

Currently, the Web3 ecosystem has more than 100 million users, of which only 15 million have the opportunity to access DeFi. These early crypto holders and DeFi adopters with some technical prowess are enjoying and reaping the benefits. Accelerating adoption among mainstream mass-market users will need to address some fundamental issues.

Still in development, the current DeFi ecosystem clearly has the potential to improve. The key to its next big growth story lies in ease of use, and the industry could consider addressing a number of areas, including discovering, evaluating, and capitalizing on fragmentation opportunities on DeFi. Another area could be evaluating data-driven opportunities for rewards, risk assessments, social ratings and reviews, and integrating them into a single platform with a simple user interface. simplify.

Usability can be improved by abstracting away chain complexity and providing one-stop solutions to make buying and selling processes simpler, with easy tracking of owned assets than. The integration process could translate to a keyless, non-custodial solution, while the current process involves storing and securing the original phrases, making the process too complicated for the average user. .

Security needs innovative solutions and better experiences to tackle private key theft and phishing attacks. Since attacks are primarily caused by security breaches, with hackers often gaining access to the victim’s private key, technologies such as Multi-Party Computing (MPC) can provide additional security. high when MPC nodes run in geographically dispersed data centers, making it extremely difficult to compromise security. Here, users have full control over their assets without fear of losing money.

While the above challenges are being addressed, India’s large number of DeFi users can benefit from the growing ecosystem. India is ranked sixth in the world in terms of DeFi adoption, according to Chainalysis’ 2021 Global DeFi Acceptance Index. India has a strong community of Blockchain developers and the industry can also explore the possibilities of integrating current and upcoming opportunities in the Indian ecosystem.

One thing is clear: DeFi has the potential to boost our already vibrant tech industry, creating more avenues to generate revenue and jobs. Our developers are capable of building products and applications that can serve an unlimited audience in India. Fintech and Web 2 developers, builders and startups are ready to embrace the opportunities and ready to change or expand their capabilities by upskilling themselves.

Overall, there is people’s excitement and enthusiasm for digital assets and if we can channel this energy, we will be able to lead the decentralized revolution. Let’s also not forget DeFi’s core promise of making finance more inclusive and providing banking services to the unbanked.

The author is Senior Vice President, CoinDCX.

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