The evolution of crypto is taking a new shape with the debut of decentralized finance (DeFi)
The cryptocurrency market has seen an upsurge in the past few years. While Bitcoin is still the most popular cryptocurrency, many other new coins are popping up in the market. There’s a lot of speculation that these cryptocurrencies will soon become mainstream and replace current payment methods.
As it stands, the crypto ecosystem is divided into Centralized Finance (CeFi) and Decentralized Finance (DeFi).
CeFi refers to crypto companies that provide trading, staking, and lending & borrowing services within a centralized platform. On the other hand, Decentralized Finance (DeFi) is a new class of decentralized, peer-to-peer lending applications that enables people to lend and borrow money without an intermediary.
DeFi applications are considered decentralized as they do not have a single centralized authority or node that controls the movement of funds. The transactions are governed by smart contracts, which means that the system is censorship-resistant. In recent years, this upcoming market has been giving CeFi a run for its money.
Centralized Finance (CeFi)
Centralized financial services is a paradigm that was introduced in the 1980s. It is also referred to as Central Banking. The central bank aims to maintain a stable monetary policy and regulate the country’s currency. It also plays a role in regulating and controlling the flow of credit within the economy, usually through interest rates or reserve requirements.
The central bank provides all these services with assistance from commercial banks. This is done by providing liquidity when required and can be seen as similar to how a brain coordinates all of your other body organs to work together for your general health and well-being.
Centralized crypto services operate similarly to traditional finance, given that a single entity controls the options. Some of the centralized crypto service providers include exchanges such as Cryto.com. This platform offers crypto users an avenue to trade digital assets such as Bitcoin and Ether, amongst others.
Notably, the centralized crypto platforms feature additional services that are not available in traditional finance. Crypto users can increase their income by staking on an exchange like crypto.com. In doing so, they are actively contributing to the growth and sustainability of the crypto ecosystem.
While the staking yields on CeFi platforms are more lucrative than the interest rates offered by traditional banks, it is gradually becoming evident that crypto stakeholders prefer decentralized platforms.
The Era of Decentralized Financial Markets
Decentralized financial markets are gaining momentum as blockchain technology continues to mature, with the price of cryptocurrencies like Bitcoin and Ethereum increasing exponentially over the past few years. The 2008 global financial crisis made investors even warier of traditional centralized markets that governments or banks can heavily manipulate.
This is where decentralized markets come into play. As opposed to centralized architectures, DeFi uses blockchain technology, which allows for more transparency and regulation while being insured against fraud or hacking attacks. This leaves fewer opportunities for governments or large institutions to manipulate prices for their benefit.
So far, the DeFi market has evolved to feature a wide range of decentralized financial services, including trading, asset management, payments, lending and derivatives. The latter category can be accessed on DeFi protocols such as Premia Finance, a next-generation DeFi platform that allows users to create a customizable call and put options.
There are also some upcoming DeFi projects’ whose primary focus is to build an ecosystem where users can contribute to social impact initiatives. One of the players in this area is Popcorn network, a DeFi protocol designed to fund social impact organizations.
With Popcorn network, DeFi users can stake their crypto assets to generate competitive returns based on the featured strategies. Essentially, this project incentivizes DeFi users to start doing good by allocating their staking returns towards social impact initiatives that support education, environment and open-source innovations.
Unlike most of the existing DeFi protocols, Popcorn network sets itself apart by creating a non-profit decentralized project where POP token holders have a say on the governance and funds allocation. Ideally, the token holders can nominate or elect organizations that are making a social impact and choose to allocate grants towards their initiatives.
Popcorn’s network value proposition is one way of scaling DeFi into a more significant niche. Similar to the corporate social responsibilities (CSR) in traditional finance, Popcorn creates a way to give back to society.
As the world moves to adopt digital ecosystems, a lot is bound to change. This evolution can be seen with the advent of cryptocurrencies like Bitcoin, changing how people view money. Before Bitcoin’s debut, most people were fixated on the idea that economies have to be run from a central point. However, this fixation has changed as more people come to realize the value proposition of decentralized architectures.
That said, Decentralized finance is here, and the future of money is digital. This new decentralized financial marketplace has evolved to offer many services like loans, portfolio management, banking services, and more.
The future of money looks bright with the emergence of the blockchain. Instead of relying on a centralized bank to store your money in an account, people can now store their funds in a wallet that they own and control themselves.
Not only do cryptocurrencies provide security for your money, but they also offer convenience as they allow people to make transactions anywhere in the world. And unlike other currencies, cryptocurrency exists without relying on any government or central bank’s backing (the US government still backs USD).