DeFi has been reshaping financial services, attracting much attention from different policy makers, leaders, influencers and investors worldwide. But after a strong year of DeFi developments, is it really the future of finance? Let’s dive into the topic more!
Is DeFi the future of finance?
DeFi, short for decentralised finance, has been used since 2018. Despite only being around less than half a decade, DeFi is more than a buzzword in the crypto world. According to Grand View Research, the size of the worldwide decentralised finance market was valued roughly at USD 12 billion in 2021, and it is projected to increase at a CAGR of 42.5% from 2022 to 2030. In addition, half of the top 100 banks have invested in crypto assets based on research from Blockdata.
Why do we need DeFi? Three essential benefits you should know!
- Increasing financial security and transparency.
Take cryptocurrency as an example, each transaction will be viewed and verified by other users in the network.
- Enhancing the financial inclusion.
DeFi is particularly important for developing countries. Why? Firstly, most banking systems and procedures are ill-designed and managed. Also, it’s hard to open bank accounts due to a sizable barrier such as bureaucracy.
- Creating a more democratised financial ecosystem globally.
DeFi provides an opening of financial opportunities to everyone, and enables different regions to build a standardised economic system.
Obstacles associated with DeFi
- Hacking issues undermine the financial stability
DeFi’s extensive technical architecture, with its numerous possible points of failure, enhances the so-called hacking problems, which may happen less in traditional banking.
- Lack of regulation
Currently, the DeFi market is split into segments as there is no standardised regulation and policies, making it difficult to have integration in the industry.
How to prepare for the transformation?
“Maturing the DeFi sector matters because it is the future of banking”, claimed CoinDesk.
First, some cooperation between DeFi and traditional finance is beneficial. DeFi and traditional banking can complement each other. With DeFi, users can better ensure each transaction’s transparency, while traditional banking’s supervision feature can provide a more legal and regulatory service.
Second, people are always the priority. There are many people afraid of changes in this digital transformation era. Hence, building individual capacity is the most effective way to adapt to those innovative applications.
DeFi, blockchain, cryptocurrencies… These keywords might scare you off a bit. But the good news is you can learn about the latest trend of digital assets with CFTE’s THINK platform! Learn what DeFi is and how it is going to build a more democratised financial ecosystem, with Baptiste Cota, the Founding Partner at LeadBlock Partners, Blockchain VC.