Traditional finance is inefficient, disorganized, and expensive. Decentralized Finance (DeFi) uses emerging technologies, specifically the blockchain, to remove third parties and centralized institutions from everyday financial transactions.
Key Takeaways
- DeFi leverages the blockchain to eliminate third-party intermediaries.
- Crypto has gained massive popularity because it is decentralized and accessible.
- The future of crypto looks promising, expect further growth in market size, deeper integration into everyday processes, and the rise of crypto ETFs.
Cryptocurrencies and DeFi: What are they?
The blockchain is a decentralized and immutable digital ledger that records all transactions on a network. To utilize the blockchain in a financial setting, we have to use assets like cryptocurrencies.
Cryptocurrencies are digital or virtual currencies that use cryptography for security. They play a crucial role in the DeFi ecosystem by serving purposes that range from facilitating transactions, to loan collateral, and yield farming. They operate similarly to fiat currencies but exist only on a digital level. This allows for advanced coding to be involved when storing and sending crypto data between users and the blockchain.
Other Components
Besides the blockchain, smart contracts and decentralized applications (dApps) are also key components of DeFi.
Smart contracts are self-executing programs that allow for automated execution of pre-programmed code based on a set of triggers. Accessing the blockchain and crypto can be done through dApps, which provide various financial services.
Why is crypto so popular?
Over the past decade, we’ve seen a boom in crypto popularity - peaking during the early 2020s.
There are several reasons why cryptocurrencies have become so popular, though perhaps we can attribute a large portion of their fame to their decentralized nature. Individuals, institutions, and even governments can transfer funds quickly and anonymously, even across borders.
Decentralization can also be conflated with accessibility. Crypto holders need only a computer, smartphone, and an internet connection to use crypto. Often, there’s minimal identification verification or background checks required, making it easier for unbanked populations to access financial services.
Apart from their purpose as tender, digital assets are also viewed as tools for investments. People buy cryptocurrencies with the belief that their value will go up as they become better integrated with our daily lives.
While their volatility has limited cryptos' use as a means of transaction, some businesses continue to accept bitcoin as tender to this day. Even then, crypto exchanges have devised methods to circumvent cryptos' volatility. Crypto debit cards, for example, were created to allow customers to spend cash or crypto without much thought.
Use Cases and More
While DeFi is set to revolutionize the finance industry as we know it, its applications will expand beyond traditional finance’s reach. With smart contracts, projects can be programmed depending on user requirements. Here are some applications:
Payments and Remittances
Using crypto reduces the time and transfer fees associated with sending money. When sending remittances across borders, crypto allows for money to be sent across borders without the need for intermediaries.
Real-world Asset Tokenization
The blockchain can also be used to store ownership rights of virtually any asset. This way, the digital token allows the holder to own a claim on the underlying asset. Cryptocurrencies can be used like stock options, where the total supply of coins available represents ownership.
Everything from digital to real-world assets like equities, commodities, and even IPs can be tokenized.
Monetizing Ecosystems
Crypto tokens can also be used to monetize ecosystems in digital worlds. Metaverse projects often use cryptocurrency as a means of transaction. Skins, weapons, and digital land can be purchased with these tokens. Platforms can leverage smart contracts to provide loans and offer rewards as they please.
Does crypto have a future?
Crypto definitely has a future, both as an investment vehicle and a payment alternative.
As an investment opportunity, analysts have estimated that the global cryptocurrency market will more than triple by 2030. As regulations clear up, mass-market adoption takes place, and ETFs begin to sprout, we should expect positive investor sentiment moving forward.
But there are more than just investments to consider as we watch the future of finance unfold.
Deeper Integration with Human Processes
History has shown that the most profitable developments are those that fly under the radar. The logistics industry, for example, is estimated to generate between $8 trillion and $12 trillion annually. To put that into perspective, the global cryptocurrency market has a total capitalization of $2.38 trillion.
Visa and Mastercard understand this extremely well. The two companies are continuously taking on more partnerships with projects that span different protocols.
Exploring the Blockchain
Crypto projects will only get better at solving problems. Stablecoin companies are an obvious example as they present clear solutions to existing pain points (volatility). Still, new trends, like digital identities and AI integration, have taken center stage given that they would greatly benefit from the privacy-centric features of the blockchain. Digital identities and personally identifiable information are incredibly appealing to hackers as they comprise about 98% of all data breaches in 2018.
More Exchange-Traded Funds
A major storyline of 2024 has been crypto ETFs. These are exchange-traded funds that provide exposure to cryptocurrency and digital assets on traditional stock exchanges. The majority of crypto ETFs track Bitcoin, though others provide exposure to a diverse basket of crypto assets.
Leveraging the Future for Profit
People invest in crypto for the same reason that anyone invests in anything - they believe its value will rise as more people learn to use the product. One thing to note is that mass adoption isn’t linear - it’s more of a step curve as the industry faces roadblocks like regulatory issues or security breaches. The stepped process of adoption introduces volatility in prices.
So investing in crypto isn’t as easy as it seems - price fluctuations are often common.
To succeed in this space, you’ll need to constantly monitor the markets with a proven strategy that adjusts to your risk profile and to ever-changing market conditions.
A solution that Peccala provides.
Peccala is an easy-to-use, fully automated crypto investment platform. We’ve deployed a trading engine that actively manages your invested funds 24/7. Investing with us is easy; simply purchase Peccala Tokens, which you can buy or sell at any moment.
