The DeFi market has grown a staggering 1,842% in five years — from $1.2 billion in 2018 to $23.3 billion in 2023 — a figure that’s projected to reach $67.4 billion by 2026.
In addition, the number of blockchain wallet users doubled from 40 to 80 million in just three years (2019 to 2022) and revenue is expected to grow by 19.6% every year until 2027.
There’s no denying that DeFi is expanding fast — the question is ‘Why?’
What advantages does it bring about that have made it grow so fast? How is it being used today? What’s the future of DeFi? And, most importantly, how can your business benefit from implementing it?
In this blog post, we’ll explore all this and more. Let’s get started!
TL;DR — Key Takeaways on the Future of Decentralized Finance
- Businesses that have been underserved by traditional finance (TradFi) stand to benefit the most from DeFi.
- You can use DeFi to lend, borrow, make and receive payments, trade and manage assets, and more.
- The future of decentralized finance is bright. You can expect more varied and higher-quality services, more privacy, freedom, and protection, and better legislation.
What Is Decentralized Finance (DeFi)?
Decentralized finance, or DeFi, is an umbrella term for financial technology (fintech) built on distributed ledgers.
DeFi allows peer-to-peer (P2P) transactions, which eliminates the need for third parties like banks, financial companies, and other centralized institutions.
By removing the middleman, financial services become faster, cheaper, and more inclusive and accessible.
DeFi Advantages
- Open and decentralized: Anyone, from any country, can create a wallet to make and receive payments, invest, and more.
- Flexibility, high liquidity, and speed: You can do whatever you want with your assets, from anywhere, at any time — quickly, at low fees, and with no paperwork.
- Transparent but anonymous: Every permissioned member can see all transactions, but they’re anonymized.
DeFi Disadvantages
- Volatility: Apart from stablecoins (cryptocurrencies pegged to another currency like the US dollar or euro), crypto can be highly volatile.
- Complexity: Because DeFi is an emerging technology, most people still find it too complex. It might make it harder to file taxes as well.
The 3 Most Common Uses of DeFi & How You Can Leverage It in Your Business
Every company can benefit from DeFi, but those that have been underserved by TradFi will benefit the most.
You can use DeFi platforms to lend and borrow, make and receive payments, trade and manage your assets, get insurance, and more.
Cryptocurrency is notoriously volatile, but the introduction of stablecoins has made it viable for businesses.
Before we jump into some common uses of this technology, it’s important to mention that you need a crypto wallet like MetaMask to do anything DeFi-related.
1. DeFi Is an Alternative, Quick Source of Capital
It can take months for companies to acquire capital from TradFi institutions.
Small and medium-sized enterprises (SMEs), in particular, can benefit from DeFi’s capital markets, considering they often struggle to secure loans. The same goes for businesses in developing countries where there’s a lack of banking infrastructure.
Thanks to trustless smart contracts, DeFi grants loans quickly as long as you meet all collateral requirements. To do that, you could tokenize land or other assets you own, for example.
Currently, the best DeFi platforms to lend and borrow are Aave and MakerDAO.
2. DeFi Allows Secure and Efficient Notarization
In TradFi transactions, notarization can take between 30 minutes and seven working days. Also, you’ll likely have to pay fees and there’s always the risk of human error.
Worse yet, if disputes happen, lengthy and costly legal proceedings are all but guaranteed.
DeFi solves all these issues since:
- It allows almost-immediate authentication and notarization of transactions
- It ensures integrity, given that transactions are transparent and immutable
- It doesn’t sacrifice security, thanks to smart contracts
In addition, with DeFi, anyone can make and receive payments with a crypto wallet (e.g., MetaMask). This opens opportunities for businesses in countries where traditional payment processors aren’t available.
3. DeFi Is a Source of Diversification and Yield for Idle Funds
In 2022, the inflation rate in the US was 8%. This year, it’s projected to be 4.5%. This means that your idle cash reserves are losing value fast.
Even if you kept your reserves in a traditional savings account, the average annual percentage yield (APY) is only 0.25%.
With DeFi, you can convert your extra cash into stablecoins, like USDT, USDC, or EUROC, and deposit it into a lending protocol. In return, you’ll get interest. The USDC lending APY has ranged between 2% and 10%, for example.
This will help you:
- Hedge against inflation
- Strengthen your balance sheet
- Diversify and spread risk
- Improve potential gains
Also, most lending protocols allow you to make withdrawals whenever you want, giving you better liquidity than traditional options.
As we mentioned above, the best platforms for lending and borrowing are Aave and MakerDAO. Curve is the best platform for stablecoin swapping due to its lower fees. Another option is Uniswap.
Alternatively, you can diversify your company’s investments through a DeFi yield aggregator like Yearn Finance.
The Future of Decentralized Finance (DeFi)
DeFi is only in its infancy; its promise and potential are far-reaching.
According to Victor Tran, co-founder and CEO of Kyber Network, and Dan Simerman, head of financial relations at IOTA Foundation, a DeFi research and development group, in the future, we’ll have:
- Higher-quality DeFi services
- More user privacy and protection without taking away freedom of choice or space for innovation
- More power and freedom to deploy assets in creative ways that seem inconceivable today
- More ways to commodify data
The toughest future challenge will be legislation. The laws and regulations are different in each financial jurisdiction. DeFi’s borderless nature will pose unprecedented challenges to the current system.
Simerman also pointed out that making this technology mainstream will be difficult and take a long time. Continuous education is needed.
What This Means for Your Business
So, what does all this mean for your business?
- Soon, you’ll be able to access more and better DeFi services
- You’ll be able to invest, trade, borrow, lend, and commodify data and other assets in ways that are unthinkable today
- You’ll get more privacy and protection once legislation progresses
Get First Mover Advantage: Start Integrating DeFi into Your Business Today
DeFi is the biggest revolution in the financial sector since the ATM.
Becoming an early adopter will give you an almost unprecedented opportunity to get one up on your competitors.
If you want to learn more about DeFi and how it can benefit your business, [CTA + affiliate link].
Not convinced DeFi is the right move for your business at the moment? That’s ok, too.
Just make sure you keep up with the latest developments so you can jump on the bandwagon when the right time comes.
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