Exploring the DeFi industry’s advantages, challenges, and benefits

DeFi is hailed as an open, borderless, and innovative financial system that allows people to interact directly using cryptocurrencies.

Traditional finance today uses networks of banks, central institutions, and numerous intermediaries.

Nevertheless, despite the many benefits DeFi offers, a series of idiosyncratic quirks continue to divide financial experts about the long-term viability of this now rapidly expanding decentralized global financial system. It also brings risks and obstacles.

Benefits of DeFi

Imagine a financial system where the primary duty of users is to manage their money and the confidentiality of their transactions.

DeFi has achieved this by leveraging cryptocurrencies to move transactions around the world at breakneck speed, executing transactions between users via smart contracts, and facilitating borrowing and lending.

DeFi offers the highest level of security due to the immutable transaction capacity provided by blockchain technology. This eliminates the need for central banks to control all this activity.

In other words, by using cryptocurrencies for trading, DeFi eliminates the drawbacks of traditional financing and opens up a world of new opportunities for cryptocurrency users.

Furthermore, it democratizes finance by enabling everyone to participate in the global economy through the internet and relying on user communities to vote on governance issues for the many DeFi initiatives that already exist.

Issues Affecting the DeFi Sector

DeFi, like any new technological advance, faces challenges that can hinder its global adoption.

In the fast-growing DeFi space, where dozens of blockchain startups are competing for market share with consumers, incidents of rogue operators stealing investors’ money and fleeing are on the rise.

Cybercriminals have also focused on projects with potential security flaws, as all transactions take place online, and continue to target consumers who are not cautious about holding cryptocurrencies. .

According to blockchain analytics firm Chainalysis, these hostile parties could steal a record $14 billion in 2021, with the majority of these assets coming from DeFi initiatives or their users.

Meanwhile, the DeFi sector and the larger crypto community are constantly developing new strategies to mitigate smart contract vulnerabilities and adopt self-regulatory frameworks designed to prevent such attacks, and that is increasing investor confidence in this groundbreaking initiative by the financial system.

Regulatory burden is a potential danger

Given the aforementioned issues and the threat it poses to the current global financial system, it’s no surprise that governments around the world are concerned about the emergence of DeFi.

We just need to see what the US Federal Reserve did when the COVID-19 outbreak started to give thought to the latter backdrop.

To support the domestic economy, the central bank began printing billions of dollars to buy corporate bonds and keep overall interest rates at multi-year lows.

Yet this has accelerated inflation and as a result the US economy is facing an imminent recession.

By contrast, DeFi operates independently of the U.S. Federal Reserve and all other central banks, giving citizens a degree of non-interference that allows market forces to guide the direction of the global economy. I’m here.

Instead of being susceptible to sudden interest rate adjustments like central banks around the world, cryptocurrency holders can control the APY offered and borrowing rates applied.

However, with most developing countries concerned about the transfer of value from the traditional financial system to DeFi, a number of undermining regulations are planned that threaten to cripple the blossoming DeFi space. increase.

These regulations are purported to protect the interests of investors, but a closer look at the proposed regulations reveals a sinister intent to curtail or limit innovation in the DeFi space. becomes clear.

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