Posted by The development of the internet has led to the development of multiple platforms and different technologies. The basic understanding of the internet is, that you can transfer anything to anyone, without any form of constraints. Decentralized finance or DeFi as popularly known borrows the same idea.
DeFi allows one to perform financial transactions freely between two parties or two entities without any form of constraint or limitation. The transactions are secured and completely transparent. There are no hidden charges. The best part is, that there are no middlemen involved in this.
DeFi facilitates peer-to-peer transactions without any intermediaries, which is why there is a huge rise in decentralized finance use cases. Since there are no intermediaries, the cost of the transaction is quite low. Even though DeFi got developed for anytime and anywhere finance transactions, there are multiple use cases of decentralized finance. The use cases of decentralized finance endorse that DeFi Development can be used beyond core finance, and can be expanded to other application areas as well.
Key Characteristics
DeFi has leveraged the benefits of blockchain for decentralized finance. The importance of decentralized finance increased owing to its proven benefits. To understand the benefits and use cases of decentralized finance, it will be best to understand the key characteristics of DeFi.
Completely Decentralized
This is the most important feature of DeFi. It is decentralized, and with this decentralization, it achieves complete control of the digital assets of the user. This is unlike the conventional banking system, where the bank has control of the financial assets of the users, and can do whatever it wants to do with those assets.
Permissionless
The entry to DeFi doesn’t require any approval or permission, anyone can enter and anyone can exit. DeFi follows a permissionless model, which is open to all. One just needs a working internet connection and a valid crypto wallet. The best part is, that this model allows performing cross-border transactions without any limitations.
Distributed Ledger
Distributed ledger will allow everyone on the network to keep a copy of the transaction. This will ensure complete transparency. The members of the Ethereum network will be also able to validate and verify the transactions. However, even though members will have a copy of transactions, they will remain anonymous as they will be tracked only through the Ethereum Addresses.
Interoperability
One of the key reasons behind the growing use cases of decentralized finance is interoperability. It’s a completely interoperable environment, where it is interoperable with different platforms, different DeFi apps, and also with different blockchains. This provides much-needed flexibility and ease of usage to both, developers and users.
Immutability
The characteristic of immutability, ensures that transactions are tamper-proof and completely secured. This also reduces the intermittent risks of fraudulent incidents.
Programmability
Defi uses smart contracts for transactions. These smart contracts are completely programmable and based on the code in the program, the transactions are executed.
Also Read – Top Crypto Margin Trading Platforms In World
6 Use Cases of Decentralized Finance
Borrowing & Lending
One of the most important use cases of decentralized finance is a peer to peer borrowing and lending. This eliminates the requirement of a conventional banking system.
With DeFi, the fund becomes much faster, and it will be much cheaper for the borrower as he doesn’t have to pay charges like conveyance fees, processing fees, gateway fees, etc. which otherwise do exist in conventional banking.
A DeFi development company will primarily focus on developing apps for borrowers and lenders, as the majority of the banking business is driven through this. With minimal paperwork and instant access, DeFi provides a win-win situation for both, borrowers and lenders.
Asset Management
DeFi provides complete control over the assets with complete ownership. The owner controls and manages the asset, without any intervention from anybody. This includes buying assets, selling assets, merging assets, and even earning interest.
There are multiple DeFi platforms available today that provide asset management services. The best part is, that one doesn’t need to share personal data or confidential information for buying or purchasing assets, unlike in conventional banking where this information is mandatory as part of KYC (Know Your Customer). However, users can store personal details and information on their own devices through certain apps, such as MetaMask.
Market Predictions
DeFi platforms can be used for predicting future events in the market, thus allowing users to make informed decisions. For any market, the future is a big boon for investments, and for this, a core analytical model is required which can perform market predictions.
Starting from market predictions, predictive models have created their market, where apps can predict games and sports as well. One such app is Augur, which allows users to place bets on different types of games and sports, based on the predictions shared on the app.
Decentralized Exchange
Crypto exchanges form the core of blockchain transactions. DeFi helps in developing decentralized exchanges, which are not centrally governed, and enables peer-to-peer transactions.
Initially, these exchanges were set up only for Crypto trading, but soon these crypto exchanges started facilitating derivatives trading and asset trading. For asset trading, it’s a risk-free approach as the assets are not owned or controlled by the decentralized exchanges. The decentralized exchanges charge lower transaction fees compared to conventional exchanges.
Also Read – Top 7 Profitable Home-Based Business Ideas To Try In 2022
Insurance
This is one of the newest entries in the list of use cases of decentralized finance. As per this, smart contracts will have insurance terms and conditions, and the transaction will be executed only as per the code in the smart contract.
This is still in its earlier phases, but it’s bound to drive the insurance market on the blockchain platform. Developers are currently working on smart contract bugs, which can result in contract breaches. As of now, only a few platforms provide Insurance services on Defi, this includes Nexus.
Gaming
When we talk about DeFi, and mention gaming as one of the use cases of decentralized finance, it could be utterly surprising. However, it is true gaming platforms are one of the potential use cases for DeFi.
As of now, certain gaming platforms use DeFi for in-game purchases. This could be purchasing new weapons, additional credits, or even new skins. The user can purchase it on the go while playing the game. As of now, Ethereum-based games do provide bonuses or credits in form of DeFi coins, that can be used for in-game purchases.