Is Real-World DeFi The Future of Finance?

Is Real-World DeFi The Future of Finance?

November 15, 2021

With each passing day, investors across the globe are beginning to realize the true transformative power of the decentralized finance (DeFi) sector so much so that since the start of 2020, the amount of capital that has entered this fast-evolving space has risen from $12 billion to an insane $111 billion (at press time).

That said, at this point would be best to explain what the concept of DeFi actually entails. Simply put, the idea of decentralized finance describes a setup wherein it is possible for users to gain access to a wide range of financial products using a public decentralized blockchain network. To put it even more simply, DeFi platforms help mitigate the need for any middlemen — such as a brokerage firm, bank — such that users are able to participate in a host of activities such as lending, borrowing, staking without the need for any intermediary.

In fact, opposite to how most traditional financial systems work wherein users are required to provide a host of sensitive data related to them — such as their IDs, social security info, etc — DeFi based borrowing/lending platforms allow users to participate in all of these activities without having to reveal any of their personal info. 

What is Real-World DeFi?

In its most basic sense ‘real-world DeFi’ refers to the utilitarian aspect of the decentralized finance platforms, wherein they can be used to facilitate tangible change on a global scale, allowing people from all over the world to access a range of quality monetary services irrespective of their social status or geographical location. 

To put it in other words, DeFi applications that help bring about concrete change by disrupting the existing monetary ecosystem — i.e. central bank-based finance —  that is in place all over the world can be classified as real-world DeFi platforms.

Taking Real-World Assets (RWA) to the Next Level. Here’s How

Even though the idea underlying real-world DeFi sounds extremely appealing, it is worth noting that there are only a handful of projects that have actually come close to realizing this vision. For example, MakerDAO was the first such platform to allow users to lend/borrow real assets via the use of a stablecoin (DAI), thereby making conventional financial operations highly seamless. 

That said, with the advent of Real-World Assets (RWA) in DeFi, it will become possible for existing platforms to be adopted on a global scale more easily since they represent actual resources that people use in their daily lives. In that sense, RWAs are best described as any physical asset that can be represented on-chain.

Thus, by having the power to utilize real-world items — ranging from real-estate to fiat assets and everything else in between — within the context of a blockchain system, it can become possible for DeFi to really blossom and reach its true potential.

The Future of DeFi Depends on Real-World Assets

To help bring DeFi to the masses, platforms that actively utilize RWAs seem to be the need of the hour. Centrifuge is one such offering that has made a name for itself within this fast-evolving market in recent months. The project seeks to assist SMEs (small and medium businesses) in fulfilling their financing needs by allowing them to connect with investors while eliminating the need for any middlemen. 

The platform’s governance model is extremely futuristic in its design and is steeped in the ethos of decentralization and transparency, thereby allowing users to accrue much higher returns than they normally would if they were to use traditional avenues such as savings bank accounts.

Looking Ahead

With the cryptocurrency market continuing to expand at an exponential rate, as is made evident by the fact that over the course of 2021 the total market cap of this space increased from $1 trillion to $3 trillion, it seems as though the DeFi industry will only continue to grow and expand its reach in the near future.

In fact, with each passing day, an increasing number of mainstream financial entities as well as investors seem to be recognizing the immense social and monetary potential of this novel tech domain. And even though the DeFi market as a whole is in its relative infancy, the fact that it stands to completely redefine the traditional banking sector has a lot of people watching this space closely.

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