Decentralised Finance (DeFi) opens up the world of finance and puts it in the hands of the people. Think of it as if programmers decided to build the world financial system on the blockchain, and make everything open to everyone at every level. DeFi is revolutionising the financial system by putting the business logic of financial institutions into smart-contracts. Smart-contracts automatically execute the code when conditions are met.
DeFi is succeeding in part because it solves the problem of trust. If you deposit money into the bank, you inherently trust that the money will be there. This trust is backed up by the government, which will enforce laws if the financial institution does something illegal.
The open source code in the smart-contract provides trust. Smart-contracts run on the blockchain, they are always active, and they always follow the rules. Since the code is open source, anyone can view how the contract works. If you have programming skills, you can even contribute to the platform. The collective efforts of hundreds of people brings the trust factor to the community.
Understanding the problems that exist today
· One of the best ways to see the potential of DeFi is to understand the problems that exist today:
· Some people aren’t granted access to set up a bank account or use financial services.
· Lack of access to financial services can prevent people from being employable.
· Financial services can block you from getting paid.
· A hidden charge of financial services in your personal data.
· Governments and centralised institutions can close down markets at will.
· Trading hours are often limited to business hours of a specific time zone.
· Money transfers can take days due to internal human processes.
· There’s a premium to financial services because intermediary institutions need their cut.
The popularity of decentralised finance continues to surge. The sector is innovative, and has the potential to disrupt finance as we know it.