Use-Cases for Defi (Decentralized Finance)
Decentralized Finance abbreviated as DeFi is an ecosystem of open source, permissionless, and transparent financial applications that is built entirely on the fundamentals of the most nascent technology known today i.e. BlockChain. The core functionality of DeFi is to provide a better financial system without any intermediaries, which are still an integral part of the traditional financial system. DeFi has witnessed an astounding growth in these past few years with approximately more than 100,000 users and assets worth around $32.48 billion locked in the Ethereum platforms as of 4th February 2021.
However, this unprecedented growth of Defi is the result of its appropriateness in certain use cases which in turn is a result of the various services offered in the DeFi ecosystem. Some of these Use-Cases are mentioned below:
● Open Lending Platforms- The highly common and frequently practiced Use-case of Defi is Open Lending Platforms. It is generally the feature onto which all of the Decentralized platform applications are based. It allows any individual to either lend or borrow the assets to/from another member of the network.
● Stable coins- Second most popular and prominent use-case of Defi is the use of Stable coins. Stable coins are a digital representation of an underlying asset which can either be a fiat, a commodity, another cryptocurrency, or anything of definite value. The concept of stable coins have become extremely popular considering the fact that even the large financial institutions such as the Bank of England and the US treasury have accepted stable coins as a better and efficient means of payment,
● Asset Management- DeFi protocols allow an individual to take custody of their own funds or assets which, being a basic right, has been unavailable due to the intervention of third parties. The Crypto Wallets present now a days allow the members of the network to manage their assets including buying, selling, and lending their assets in a particular network, specifically a Blockchain network.
● Decentralized Insurance- Some platforms of Decentralized Finance (Defi) allow individuals to leverage insurance against their digital assets. This insurance is likely to be taken against possible hazardous events like a market crash, account hacking, contract failure, and more such reasons.
● Staking- One of the most simplest and widely practiced use cases of Decentralized Finance (DeFi) is Staking. Staking is the process of actively participating in transaction validation in a blockchain network. Anyone with a minimum-required balance of a given cryptocurrency will verify transactions on these blockchains and win Staking rewards.
● Yield Farming- One of the more recent and popular use-cases for DeFi is yield farming (also known as liquidity mining). This is the method of locking up digital properties in exchange for incentives that are normally provided by a smart contract automatically as the provision of liquidity by locking the assets results in the maintenance of the liquidity pool of a particular protocol
● DAOs- A DAO is a decentralized, autonomous organization that cooperates to eradicate the need for a centralized, hierarchical body according to explicit rules encoded on the Ethereum blockchain. Several common protocols in the DeFi space, including Creator and Compound, have launched DAOs to fundraise, handle financial activities, and provide decentralize governance to the public.
Closing thoughts
It is an undeniable fact that the crypto space is heading towards a bright future, considering the stellar growth of DeFi in the past years. While the future is expected to bring new obstacles, new prospects will also emerge as interest in DeFi is on the rise and innovation in this space is always on the brink.
We at Capital Finance are excited about the future of DeFi and we are ready to contribute to the growth of this sector. Have an idea for a DeFi app that can change the world? Let’s chat at support@capitaldefi.finance about how we can assist you in reaching your goals
