Could Decentralized Finance Change Financial Systems for the Better?
It’s no shock that the blockchain industry has been hitting its stride in recent years. Ever since the inception of bitcoin back in 2008, new developments and innovations in the world of crypto have been steadily changing the blockchain business from a niche tech service, into a worldwide industry with hundreds of millions of users.
While crypto has been growing, there are still many people who have sworn off blockchain due to the major tech barrier that still stands in the way of mainstream adoption. There are plenty of flashy headlines that catch the attention of ordinary folks, like the piece of digital art that sold for $69 million as an NFT, or the famous “Disaster Girl” meme image which sold for $500,000, but there aren’t many uses of crypto that apply to tech outsiders. There is, however, a growing crypto industry that hasn’t received as many headlines, but has the potential to seriously change the blockchain sphere – decentralized finance.
What is DeFi?
Decentralized finance, or DeFi, is just what it sounds like – finance decentralized. There are many services provided by financial institutions, like transferring money between people, lending and borrowing, and making investments, but all of these services are centralized. This means they can be affected by mismanagement, fraud, and corruption. DeFi decentralizes these services, so they are less vulnerable to these kinds of issues.
DeFi systems run off of peer-to-peer networks rather than central systems, meaning that it’s nearly impossible for a central authority to meddle with the way people use these systems, and they can’t be affected by real-world events as heavily. For example, the pandemic has made getting a loan or borrowing money from banks more difficult, but this is not a problem when using decentralized finance.
Naturally, since fiat currencies are still the norm, centralized financial institutions have become invaluable. DeFi on the other hand, wouldn’t have much broad appeal without the interesting and useful crypto applications that are being developed. NFTs have drawn a huge crowd of newcomers to the industry, and just like centralized financial opportunities can help you manage and grow your real-world money, DeFi services can help people manage their electronic cash.
There are a plethora of ways crypto can be used these days other than as a simple investment you can buy into like a stock. Services like PayPal now allow users to pay with their crypto holdings, and new NFT collectible games like NBA Top Shot and Dark Country are drawing the attention of traditionally uninterested parties like sports fans.
You may be wondering how exactly people go about using DeFi. Let’s take a look at Nimbus, one of the leading DeFi services, to get a better understanding of how DeFi really works.
The inner workings of DeFi
Decentralized applications, or DApps, come in many forms. They run on code that’s stored and operated on blockchain infrastructures like Ethereum and Binance Smart Chain called smart contracts – this is what makes DApps decentralized. Say there’s a DApp that allows a person to lend out cryptocurrency they own to borrowers so that they can earn interest on it. The lender and the borrower would immediately and autonomously be connected by the code on the blockchain to make their transaction. A bevy of these DApps exist: DApps that let people lend and borrow money, DApps that let people exchange cryptocurrencies for other cryptocurrencies, DApps that let people insure their crypto ventures, and more.
Nimbus collects a series of these DApps to allow users an easier way to manage their crypto holdings and ventures. Nimbus boasts that through the DApps they provide access to, users have sixteen possible revenue streams by which they can grow their crypto holdings.
The creators of Nimbus, seeing the writing on the wall, have also made significant efforts to make it as applicable and intuitive to newcomers as possible.
Combining multiple different DeFi DApps creates a kind of central hub for DeFi services, which is far more appealing to newcomers. Those who are unfamiliar with crypto can use one single platform for their DeFi needs rather than relying on different services. Nimbus has not introduced any sort of KYC (Know Your Customer) systems yet, which also makes things much simpler for newcomers since they don’t have to provide any of their personal information.
One of the unique factors of Nimbus that appeals to crypto lovers and newcomers alike is their adherence to that previously mentioned communal aspect of the crypto industry. Members of the Nimbus community have a huge influence on how the platform runs via a voting mechanism. The Nimbus team regularly updates the service with new changes and features, and they decide on what to change and implement based on the feedback they receive from the community. Due to its decentralized nature and this community aspect, Nimbus is tailored to the needs of the users; they hold all the power.
It’s easy to see why decentralized finance can be so appealing to crypto newcomers. It allows them to trade and use their financial resources on their own terms rather than the terms of a bank or a government. The lack of a central authority certainly makes the industry more abstract, but it also makes it far more flexible for the consumer. Undoubtedly, as we see more consumer-facing crypto products and services developed, like NFTs, more and more people are going to want to own cryptocurrency. These newcomers will want simple ways to manage and grow their crypto holdings, and DeFi services like Nimbus are the solution they’ll be looking for.
Editor’s note: International Policy Digest has no affiliation or relationship with Nimbus, related companies, or products.