Decentralised finance (DeFi) allows its users to access financial products through a decentralised blockchain networks, according to Cointelegraph. As there is no need for middlemen in DeFi, a public record of transactions allows people to access transactions.
As stated by the publication, DeFi aims to replace central institutions with peer-to-peer relationships that do not need intermediaries. The mode of finance helps to cut down the time necessary to process transactions, and do not require a third party or paperwork involved in traditional finance. DeFi has the potential to replace banks with an aim to help the unbanked population. According to Statista.com, countries with less stable economies have higher shares of the unbanked. So, here are the reasons how DeFi can help the unbanked economies:
Financial freedom with DeFi
Through the use of traditional financial systems, many individuals may not qualify to take out loans, invest or even open open accounts in their name. Reportedly, it has been rarely found that banks have catered to the needs of low-income populations, due to reasons such as high credit scores, steep fees, and high incomes. In these cases, the use of DeFi helps to combat this inequality through diversified financial services, transparent transactions, and accessibility through a permisionless network.
DeFi makes financial services more accessible and democratised
Blockchain allows people to transact without the need of a central authority. Blockchain based transactions are verified by a distributed public ledger, which is accessible to everyone in the network and holds an immutable number of transactions. Through DeFi, the unbanked can gain access to services such as loans and investments. The infrastructure distributes the risk among individual investors who finance the loan, which eliminates the need for a single entity to bear the risk.
The opportunities with DeFi
The various advantages one can get through the use of DeFi are:
Digital asset trading- Through them, cryptocurrency traders can transact with one another without the need of banks, brokers or intermediaries.
Yield farming- It allows for the cryptocurrency staking of assets in non-custodial DeFI protocols, which allows users to earn a fixed or variable rate of interest.
Lending protocols- They allow users to borrow funds with cryptocurrency assets as collateral. Users also get the option to lend their cryptocurrency to other users at high interest rates.
Community and money coming together
With cryptocurrency being headed towards the mainstream, the low income population is expected to gain equal access to financial services. Investment opportunities will also be convenient through DeFi. Technologies behind DeFI, blockchain and smart contracts have created the area for people to have control over money outside of traditional finance. Some credit and mortgage firms have already started to use cryptocurrency as collateral. Through DeFi, people can invest in large-scale global projects such as real estate, infrastructure, technology, and climate change projects.
(With insights from Cointelegraph)