WHAT IS DeFi?
DeFi or Decentralized finance is an alternative for the conventional financial system which is known as CeFi or Centralized Finance. The ide of DeFi began to gain traction in early 2020. It is considered as the primary step for overhauling the conventional financial model. In CeFi the control of assets and its prices are centralized, it lies with the government, regulator, or a corporate entity. In DeFi no single entity or the government has total control. It is made on top of publically available blockchain and is more transparent than CeFi.
AIM OF DeFI?
In order for this ideology to survive, it needs more participants. Governments around the world are not so happy about decentralization. DeFi aims at making cryptocurrency a legal tender in the world, so in order to make that happen, it needs to create a stable ecosystem.
HOW TO DEAL HIGH MARKET VOLATILITY?
Currency is something that has a monetary value. Fiat currencies issued by central banks come with a guarantee that it can be used to pay a particular amount. And when it comes to fiat currency the purchasing capacity of 100$ today will be the same tomorrow. But for cryptocurrency on which DeFi s future lies on, things are different
- Its price has high volatility
- Not all cryptocurrencies are asset-backed and the value of 1ETH will not be the same as today tomorrow.
- It is not supported by central banks or governments (with a few exceptions)
Stablecoins: Stablecoins were introduced to manage the high price volatility of crypto. Stablecoins are usually backed by a Fiat currency or an expensive commodity . Since they are backed by assets it is not subjected to high price changes like other cryptos
.THE IDEAL ECOSYSTEM
The ideal ecosystem for DeFi should consist of the following.
- Decentralized Exchange
- Stablecoins
- Smart contracts that allow lending between two addresses
- A strong community which uses cryptocurrency as legal tender
- Payment gateways should accept cryptocurrency
- Shops and merchants accepting cryptocurrency
- Scan and pay technology incorporated in wallets
- Cryptocurrency debit and credit cards.
You may find this against your idea on DeFi, but governments around the world are not reacting positively to the idea of decentralization, so the change or events that me occur in ten years cannot be precisely predicted.
