Decentralized financial systems are a kind of new monetary system that intends to be a good alternative to traditional monetary systems. This new financial system has quickly gained popularity due to its advantages over the traditional model, and therefore, the question that has arisen for many people is what will be the future of this new financial system?
Decentralized financial systems, or DeFi for short, is one of the special usage of cryptocurrencies. For this reason, we read the opinion of the singular analyst in this field, called Mr. Alireza Mehrabi.
Differences between a decentralized financial system and a traditional financial system
It is better to first define the meaning of the word ‘decentralized’ together. Banks or financial institutions have always acted as intermediaries between the two parties to a transaction. Because of their high power, these institutions were able to control the transaction from various angles. For example, exactly who the deal is made between, what its financial value is, and for what purpose, this amount of money is transferred.
This made ordinary people unsuccessful in many of their transactions, as these institutions could use their power to avoid transactions or to impose heavy taxes. That’s why decentralized financial systems came into being. In these financial systems, power is not for one financial institution alone, but the power to approve transactions is distributed among many people. In other words, the power to approve transactions is not centrally in the hands of a financial institution, but is distributed and decentralized. DeFi advocates say the system has the potential to transform the lives of people who do not have access to banking services and can make life easier for everyone else.
DeFi has major differences from the traditional financial system. In the following, we will review some of them:
- Low transaction fee
- High speed transaction
- Possibility of peer-to-peer transactions
- Easy deal with anywhere in the world
The best projects in DeFi
Many cryptocurrency projects work on DeFi. But Mr. Mehrabi believes that the three cryptocurrencies are much more powerful than others; Ethereum, Terra and Fantom.
Ethereum is the first and probably the most successful cryptocurrency in the field of DeFi. Mr. Mehrabi believes that the future of DeFi is highly dependent on the future and decisions of Ethereum. Currently, the blockchain network of this cryptocurrency, due to its unique features, has been able to host many defi projects on its network. Ethereum creator Vitalik Buterin has focused Ethereum Blockchain on Defi, and he expects to get the most attention with Ethereum 2.
Terra, which can be seen in reputable exchanges with the symbol of LUNA, is the second cryptocurrency that, according to Mr. Mehrabi, can have a bright future in the DeFi industry. Terra is powered by its unique blockchain network. This powerful blockchain allows them to create multiple stablecoins, as well as create specific protocols. The purpose of this cryptocurrency is to stabilize the market with the help of its stablecoins.
There are many cryptocurrencies in DeFi, but not all of them can be as successful and practical as the Fantom. Mr. Mehrabi places great emphasis on the bright future of the Fantom. He believes that this coin can be a serious competitor to Ethereum. According to the latest statistics, the total value locked or TVL for Fantom is second only to the Ethereum. This statistic is very important for Defi projects.
Fantom has several special functions for DeFi, as well as the ability to create smart contracts. It should be noted that it is not possible to have a DeFi without a smart contract.
successful projects in DeFi are not limited to these three, but also include UniSwap, Cardano, ChainLink, and more.
Correlation between lending and defi systems
One of the most basic uses of defi is lending systems. In traditional banking systems, getting a loan faces many challenges. For example, having a guarantor, paying planned installments with high interest rates, as well as a low loan amount are some of the problems of the current lending system, which fortunately do not exist in any of these problems.
The future of decentralized financial systems
It makes sense that as we move forward, the problems of a decentralized financial system will be resolved and closer to operationalization. Optimizing this financial system can attract even governments. Because of this, threats may also arise. Scam projects undermine the current trust in Defi. Nevertheless, according to Mr. Mehrabi, the best usage of blockchain technology and the most sustainable is decentralized financial systems.
Defi is a necessary for all other industries. So the survival of other usages of blockchain depends on the future of Defi.
Decentralized financial systems are designed to solve the problems of the traditional banking system. Nowadays, they are not just about a simple financial transaction, but also the possibility of lending, financial activities in Metaverse and many other things.