Since 2020, there has been a seismic shift in society and business. As a result, the increased use and reliance on remote and virtual work, business, and education is an accelerating trend.
The idea that work and education would be remote was something that seemed like a science fiction fantasy, but if anyone was paying attention to the rise of online shopping and e-commerce should have seen it coming.
And the more businesses and society at large embrace a virtual world, the more it will become to disrupt other aspects within that society.
That disruption appears to be already occurring in a traditionally conservative, inflexible industry, the finance industry.
The disruption to the finance industry is seen in the rise of blockchain and decentralized finance in general. Decentralized finance, or DeFi, removes the typical operations of banks and other financial institutions and emphasizes empowering individual investors.
The Rise Of DeFi Vs Traditional Finance (TradFi)
DeFi products and services lend an alternative to traditional finance or TradFi.
The advantage to people utilizing DeFi products and services is that instead of using traditional banks and lenders, DeFi allows individuals to lend, transfer, invest, trade, borrow, and save instantly between each other and without having to pay fees to a third party.
Think about DeFi this way; it acts as a way to get a loan (or to make a loan) without the complex paperwork and, at a reasonable rate, negotiate between the two parties. The ease of the transaction saves a ton of time and paperwork that is customary for traditional financing.
Often people will utilize decentralized exchanges (DEX) to help match the borrower with the right lender to provide cryptocurrency as the traded investment vehicle.
While getting loans from individuals without paying fees is a nice benefit to DEX, the extra benefit is that while traditional lending may take weeks to get funded, loans made through a DEX can be approved and funded in minutes.
The rise of DeFi is partly due to people becoming more comfortable with online trades, applications, work, and more. Another key factor is that DeFi provides a level of transparency and funding in real-time that TradFi can’t match.
Additionally, the astronomical rise of the value of DEX and DeFi, in general, is due to the liquidity available to the market. Therefore, having decentralized funds that are entirely liquid provides for easier access to lending and faster funding in general.
Is DeFi Safe?
If you’re curious about the security and safety of utilizing DeFi, know this, the industry as a whole is a regulated industry and with it are a number of regulations, rules, and controls.
These decentralized exchanges are often regulated by the FinCen, or the Financial Crimes Enforcement Network, an arm of the U.S. Treasury that specializes in financial criminal enforcement, particularly online financial transactions.
Also, these decentralized exchanges provide internal controls to protect their clients’ assets operating on the exchanges that go above and beyond the controls and regulations put out by government rules.
Three DEX Types For Investors
There are three types of DeFi options for investors.
AMMs: AMMs stands for Automated Market Maker and uses smart tech to fulfill orders while also tracking the price fluctuations of digital products and assets. While some DeFi options create peer-to-peer options, AMMs use community-funded liquidity pools to execute trades.
Order Books: The second form of a decentralized exchange is Order Book. There are two types of an order book, on-chain, and off-chain. Buyers can set a price to buy digital assets and sell them at a fixed price. On-chain trades allow those trades to occur without taking physical ownership of the digital asset.
DEX Aggregators: DEX aggregators are the third and final type of DEX. These operate similarly to a search engine, eliminating much of the manual work to find the tokens and creating the top results as you search for a specific token.
More and more businesses and societies are operating away from the historical ways of conducting those operations.
From finance to work to shopping and school, the move to decentralize and move to a remote form is quickly gaining steam. As a result, those organizations that envision and embrace these adaptations will see a significant competitive advantage.