Decentralized Finance (DeFi) is changing the way people around the world think about money faster than any previous financial revolution. The banks, which have monopolized our access to money since antiquity, are finally witnessing their position being questioned. Now it is DeFi that is starting to offer an alternative that can turn the economic landscape around and democratize access to finance.
This massive shift of power from governments and banks to real people is well delayed, especially in developing countries, where DeFi is already emerging as a tool for transfers and microloans. Financial inclusion is another major benefit that DeFi has to offer, especially when 1.7 billion adults lack access to banking services.
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The growth in the DeFi room is impressive. By borrowing the concepts of traditional finance and transforming them into transparent protocols through smart contracts, DeFi provides an unreliable ecosystem that provides everything from insurance to loans and savings accounts. The appeal of DeFi is clear: the total value of assets in DeFi financial products reaches almost 175 billion dollars.
However, as DeFi grows and governments and banks are unwilling to lose control of the monetary system, they turn their attention to the very problem of digital currencies. The Central Bank’s digital currencies (CBDC) are seen as a way to maintain control over the monetary system, giving users faster and cheaper transactions. If we fast forward to 2030, what elements of decentralization can we expect to see in our daily lives?
DeFi in the future
Imagine, if you will, 2030. Celia, a young Parisian woman, pulls out the phone to buy a Eurostar ticket from Paris to London. When she gets to the payment screen, she chooses her primary digital wallet. When she turns to her wallet, Celia sees that her digital balance in euros has shrunk. At the moment, no cash savings are retained, as loans can be taken and repaid in a person’s wallet, depending on the value of assets they own and are repaid automatically over time.
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Although DeFi will play an important role in 2030, the central banks’ digital currency will also play an important role, becoming the standard instrument for banks around the world. China is a leader in achieving success from its past experience. However, they tend to have more public control, scrutiny and oversight. As a result, DeFi has become the primary choice for people who value the freedom to govern the economy and now support the global financial system. Due to the popularity of DeFi, we said goodbye to bank accounts, which allowed us to access and use our money anywhere, anytime and borrow to borrow when needed.
Cryptocurrency’s goal of making money globally means that the underlying DeFi protocols provide liquidity in swaps, loans and lending. Despite the complexity of DeFi, end users do not realize that they interact directly with these global sources of liquidity, as full confidentiality is guaranteed for all DeFi and expenses.
In addition, we process all international payments at the second level in Zero-Knowledge Proof (zk-Rollups), a scaling solution that consolidates hundreds of off-chain transactions into an Ethereum smart contract, which helps reduce blockchain congestion. An encryption certificate, known as a SNARK, is generated to prove validity and published at the first level. Bitcoins (BTC), Ether (ETH) and stablecoins are offered free and open source options for government money, and are used immediately without permission and exchanged immediately for some major government currencies.
Defeats the DeFi challenges
Judging by the way DeFi works, this is definitely a sensible future for it. Ultimately, for DeFi to achieve what many believe is the ideal future, there are some obstacles that must be overcome first.
One area to consider are barriers to widespread adoption. For example, weak smart contracts, the unpredictability of the DeFi market, regulatory issues and access to new technology.
Other positions in space are too complex for an average trader or investor. Blockchain inefficiency is a problem that needs to be addressed, especially in terms of power consumption and transaction costs on Layer 1 blockchain protocols. Although alternatives have so far been compromised in terms of security, early technological solutions are emerging. Examples include ZK-protected encryption or Layer 2 solutions that fit multiple transactions into space, thus reducing costs.