Analyzing the Growth of Decentralized Finance DEFI Development

  • For decentralized finance to be adopted by the mass market, it needs to sort out the regulatory concerns quickly.
  • The ultimate aim of DEFI would be to allow users to have complete control over their assets using the combination of decentralization and blockchain technology.
  • It wants to distinguish itself from centralized networks where funds are controlled by governments and traditional financial institutions

Decentralized Finance DEFI Development aims at broadening access to basic financial services for the people without the intervention of central authorities. It is also popularly known as Open Finance. It is developed on top of the powerful blockchain technology. It ensures transparency as it is a permissionless system. Users will have the full power to control their assets by utilizing a peer-to-peer mechanism. It facilitates access to basic financial services for unbanked sections of the population.

Anyone can access the services offered by decentralized finance with the help of electronic gadgets and the internet.

Benefits rendered by Decentralized Finance DEFI Development

  • Open-source in nature – Anyone can access the services offered by decentralized finance with the help of electronic gadgets and the internet. The code related to DEFI’s functionality and security can also be audited by anyone without any restrictions.
  • Promotes transparency – All the transactions executed on the platform are made visible to users since it runs on the public blockchain network in the form of a distributed ledger.
  • Permissionless system – No approvals are needed from authorities for DEFI development and participation.
  • Ensures interoperability – More developers can enter Defi to create a strong ecosystem, and it is also highly compatible with multiple platforms and operating systems.
  • Attracts a global audience – It is openly available to everyone in the world irrespective of economic status and geographical barriers.

The relevance of Decentralized Finance DEFI Development 

With the Fintech industry growing fast and spreading its wings far and wide, traditional finance suffers from some drawbacks due to the presence of the middleman in various activities such as investment, borrowing, and lending. In DEFI, the presence of self-executing programs in the form of smart contracts eliminate the need for human intervention and reduce the costs of financial services. This ultimately benefits the end-user involved in the process. Some decentralized financial services enable easy onboarding of users without the KYC (Know Your Customer) verification process. They permit users to invest in a variety of assets with different liquidity pools and receive earnings constantly. They are also theft-free and protected from hacking and phishing attacks. All the services offered are highly authenticated, and no technical network errors will occur.

Why Decentralized Finance DEFI development is highly innovative 

  • Highly secure – By utilizing blockchain technology, DEFI gets rid of the risk of a single point of failure. All the data will be stored on a public distributed ledger safely. Complications are reduced as there is no chance of tampering with the data.
  • Offers the best user experience – Through automation of operations, the basic financial services can be availed at a cheap cost. Even low-income individuals will be benefitted largely.
  • Eliminates the role of third parties – Users have greater control over the financial activities as intermediaries such as brokers, agents, and banks are eliminated from the settlement process. This promotes a fast, safe, and secure investment experience.

Applications of Decentralized Finance DEFI development 

  • Borrowing and lending – With a huge increase in the number of people availing credit, decentralized finance ensures open lending protocols. Digital assets can be collateralized for receiving a loan. Counterparty risk is significantly reduced as the services are built on top of the blockchain network, ensuring affordability, reliability, and quickness.
  • Monetary banking services – With more people becoming parts of the formal economy, services such as insurance and mortgage are also offered by decentralized finance. Stablecoins are also being adopted increasingly due to high volatility in the prices of cryptocurrencies. The presence of smart contracts reduces the fees and time involved in the process. By eliminating intermediaries, the risk is significantly decreased.
  • Creation of decentralized marketplaces – Unlike centralized exchanges where they hold all the funds of the users, DEFI permits users to control their funds and trade digital assets with full freedom. Due to less maintenance work involved in the network, trading fees are lower in decentralized exchanges when compared to centralized ones.
  • Derivatives, exotic assets, and prediction markets – It can be used in risk management of advanced financial instruments such as derivatives. This can be further utilized in leverage trading, betting, index-tracking, and futures trading.
  • Provision of insurance – They can safeguard the market participants from the different forms of risks such as price fluctuation, counterparty default, technological changes, and network failure.
Ethereum is an open source, public, blockchain-based distributed computing platform and operating system featuring smart contract (scripting) functionality. It supports a modified version of Nakamoto consensus via transaction-based state transitions.

The huge progress made in Decentralized Finance DEFI Development so far 

Ethereum, the blockchain network where most of the decentralized finance projects are currently being developed, takes care of technical shortcomings by slowly making the switch to Ethereum 2.0. Huge success has been achieved in the growing industry with the likes of MakerDAO, Compound, Synthetix, and Serum. Crypto assets worth several billion dollars are being locked up in those ambitious projects. DEFI aims to sidestep the influence of authorities, enable easy access to credit without any restrictions, and improve people’s purchasing power by providing them with a chance to earn meaningful interest on their savings. It requires a lot of collaboration among the developer community, passion for innovation, and persistent efforts to challenge the current status quo and achieve the goal of Finance for all.

Challenges to the growth of Decentralized Finance DEFI Development 

  • Bugs in smart contracts in the form of overflows and underflows could create havoc among the operations. Any fraudulent transactions, if executed, are tough to reverse on the blockchain network.
  • Ethereum needs to sort out its network congestion issues sooner than later. Pending transactions would lead to market inefficiency and delay in access to information.
  • Operational risks can occur if there is a manipulation made in the price feeds, also known as oracles.
  • Lenders are becoming more stringent in the process of disbursing loans as they are demanding over-collateralization due to the absence of verifying credit scores. This reduces the chance for traders to access capital.
  • Decentralized finance applications possess less liquidity when compared to well-established and long-running centralized exchanges.
  • There are also heavy concerns regarding the scalability of the technology as they would find it tough to handle large volumes of traffic, ultimately affecting their speed and performance.

However, most of these issues are attributed to the nascency of the open finance industry. As time passes, they will mature and solve many of the underlying problems. Hence, DEFI will grow stronger in the future if it sorts out the drawbacks of low liquidity, capital inefficiency, and regulatory uncertainty. Promising solutions are on the way, making it an exciting and must-watch industry.

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Julie Mitts

Blockchain App Factory, is a leading Cryptocurrency Exchange Development Company, added features to its trading platform; margin trading and perpetual swap contracts. There has been a massive push by institutional investors to introduce futures trading for bitcoin and other cryptocurrencies.

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