The blockchain industry has so many sub-sectors that consumers are spoiled for choice. Besides things like NFTs and cryptocurrency itself, the decentralized finance (DeFi) space has become one of its most prominent offerings in the last few years.
This decentralized finance system essentially offers most if not all of the financial services a consumer would need but this is done using the power of blockchain. This usually means more privacy, control, and flexibility for consumers. If you are curious about the DeFi space but don’t know what exactly it has to offer, we’ll break it down in this article.
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Token Swapping
If you use cryptocurrency, you almost certainly trade them at some point, usually on a centralized exchange. The trouble with centralized exchanges is that they are typically custodial. This means that when you want to trade your tokens, you have to deposit them onto the exchange’s own platform. This means that for whatever period the tokens are on the platform, you lose control of them. if the exchange is compromised or something goes wrong, your control over your assets is limited. Thankfully, DeFi offers an alternative to this via DEXs. These exchanges allow you to simply connect your own crypto wallet and complete transactions without giving up custody of your tokens.
Needless to say, it has been a hit with investors and many are on the lookout for the best Defi wallet to begin trading tokens while maintaining complete control and guaranteeing access to thousands of digital assets across multiple blockchain networks. In addition, the best DeFi wallet should also provide better access to earning opportunities like staking. Some of the most popular DeFi token-swapping platforms include SushiSwap and PancakeSwap.
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Crypto Lotteries
Lotteries have existed for centuries but blockchain has turned it on its head through DeFi-based programs. We all know how the typical lottery works; you pay an amount of money to the lottery organizers and if you win, you get more money back. If you don’t win, you get nothing and lose your initial investment. Crypto lotteries have addressed one of the major pain points by leveraging smart contracts. Crypto lotteries work by investors depositing an amount of money as they buy in. This money is then pulled together and staked for interest. Once the lottery is conducted, the winner gets back their initial payment plus all the interest that has been accrued. Those who do not win simply get back the initial payment, so there is little to no risk attached to these lotteries. If you’re someone who already enjoys playing the lottery, then a DeFi-based one would be best for you.
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Insurance
Many individuals and businesses struggle to get insured for various reasons as the mainstream financial system can often be quite exclusionary. The good news is that DeFi platforms have risen to the challenge by offering smart contract-based insurance programs. On the one hand, these work similarly to traditional insurance schemes in that there is a premium, a situation or a current that is insured for, and so on. The difference is that these are governed by smart contracts and are much more accessible. For example, a person could take out insurance in the event of a natural disaster in a particular area. Payments are made through crypto and if the eventing question takes place, smart contracts will automatically release their funds to them. Compared to the traditional insurance system which can take weeks, months, or even years to settle payment requests, smart contracts mean that things are done faster and with more efficiency. Businesses and individuals who might struggle to get insurance coverage in the material world can often turn to these DeFi-based platforms to get their needs met.
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Loans
Billions of dollars are given out each year as loans and the DeFi space is not being left behind. Just like with insurance, there are decentralized platforms designed to offer loans to individuals and businesses. As usual, these are governed by smart contracts that state the terms of the loans, including the principal, interest, time limit, and so on. All parties involved connect their crypto wallets to the platforms and once the terms are agreed on, the amount in question is given to the borrower. Once the loan period has elapsed, payment is automatically taken from the borrower and this saves lenders much time and effort in tracking down debtors. It has also become a source of passive income for some crypto users who simply deposit their funds, state the loan terms they are willing to engage in and allow the smart contracts to match them with prospective borrowers.
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Asset Tokenization
Even as many of us look to invest in various schemes, the initial capital requirements can be a barrier to entry. For example, investing in real estate would typically require tens if not hundreds of thousands of dollars or even more. But tokenized investment via DeFi would mean that ownership in a property venture would be split into fractions and sold as cryptocurrency. Instead of a single consumer spending a hundred thousand dollars on a property, they could spend a thousand dollars to own 1% of an investment scheme. As the business makes money in the material world, they get a portion of the proceeds based on how much ownership they have. This goes a long way to ensure accessibility for people of all income groups and the use of smart contracts means that dividends are given out instantly and efficiently. DeFi platforms have seen this tokenization method applied to everything from art to precious metals and so on. And as time goes on, the use cases will only expand.
Conclusion
If you are considering getting into the DeFi space, you’re in luck, as there is no shortage of use cases and ways that you can benefit from it. From swapping your cryptocurrency to investing in real-world assets to taking out loans and even insurance, these platforms mean that various financial services are accessible to everyone and thanks to the magic of smart contracts, all this can be done with little hassle.
