According to Cointelegraph, decentralized finance (DeFi) allows users to access financial instruments through a decentralized blockchain network. Because DeFi doesn’t require middlemen, public records of transactions allow people to access them.
As stated in this publication, DeFi aims to replace central institutions with peer-to-peer relationships that do not require intermediaries. The mode of finance helps reduce the time required to process transactions and does not require third parties or paperwork involved in traditional finance. DeFi has the potential to replace banks to help the unbanked. According to Statista.com, countries with less stable economies have a higher proportion of unbanked people. So here’s why DeFi can help the unbanked economy.
Financial freedom with DeFi
Using the traditional financial system, many individuals may not even be eligible to take out loans, invest, or open accounts in their own name. Banks have reportedly rarely addressed the needs of lower-income groups. This is due to reasons such as high credit scores, high fees and high income. In such cases, the use of DeFi can help address this inequality through diverse financial services, transparent transactions, and accessibility through permissionless networks.
DeFi will democratize financial services more accessible
Blockchain allows people to conduct transactions without the need for a central authority. Blockchain-based transactions are verified by a decentralized public ledger. This ledger is accessible to everyone in the network and holds an immutable number of transactions. Through DeFi, the unbanked can access services such as loans and investments. The infrastructure spreads the risk to the individual investors who finance the loans. This eliminates the need for a single entity to bear the risk.
DeFi opportunity
Here are the various benefits that come from using DeFi:
Digital asset trading- Through them, cryptocurrency traders can trade with each other without the need for banks, brokers, or intermediaries.
Yield Farming- This enables crypto staking of assets on non-custodial DeFI protocols, allowing users to earn fixed or floating interest rates.
Lending protocol- This allows users to borrow funds using cryptocurrency assets as collateral. Users also have the option to lend their cryptocurrencies to other users at high interest rates.
Community and money come together
As cryptocurrencies head into the mainstream, it is hoped that low-income people will have equal access to financial services. Investment opportunities will also become convenient through DeFi. The technology behind DeFI, blockchain and smart contracts has allowed people to manage their money outside of traditional finance. Some credit and mortgage companies have already started using cryptocurrencies as collateral. Through DeFi, people can invest in large-scale global projects such as real estate, infrastructure, technology, and climate change projects.
(Including insights from Cointelegraph)
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