The financial world has undergone massive changes since last year. In layman’s language, the financial world is no longer only about cash, gold, term deposits, stocks, bonds, and mutual funds. Cryptocurrencies are now a buzzword, Bitcoins have been making headlines for their superlative performance for the past year now. An increasing number of people around the globe are adopting cryptocurrencies, and are also realizing the disadvantages of centralized finance. The mainstream politicians and the media are also currently adopting a much friendlier and lenient approach than before towards cryptocurrencies. Therefore, it will not be an exaggeration to suggest that decentralized finance (DeFi) has tremendous potential in the future of the financial world.
Decentralized finance (DeFi) offers access to traditional financial instruments and is crucial for ensuring better market efficiency. It allows users to trade on future prices and offer valuable information regarding market sentiments and expectations. It is always advisable to look for a regulated cryptocurrency platform in India to ensure safer and legal access to other financial instruments within the country. DeFi is highly advantageous for retail investors to take part in markets that only have institutional players. For instance, any ordinary shopkeeper from any corner of the world with a stable internet connection can buy Bitcoin or invest in it through a Bitcoin ETF.
DeFi is essential for the formulation of risk management strategies. From the perspective of investors, it is a vital advantage. They can use cryptocurrencies as a hedge against risks and inflation. It is also true that through DeFi, investors can manage and access tools that can reduce risks considerably. Therefore, these help in a better level playing field, promote better financial management and ease financial services.
Decentralized finance (DeFi) can facilitate price discovery and improve market efficiency. This is because by trading, the users can gain a better understanding of the prevailing market sentiments and expectations. Therefore, it can guarantee better market participation and reduce the scope of information asymmetry.
The uniqueness of DeFi is also the leading reason why it can bring a paradigm shift in the financial market. It is wrong and unfair to only classify the external factors responsible for the growing popularity of decentralized finance. Therefore, these are the unique characteristics of DeFi that are also equally important to understanding the potential of cryptocurrencies.
This is the best characteristic one can imagine in the world. DeFi applications are based on blockchain technology and are available throughout the world.
DeFi guarantees better autonomy than centralized finance. This is because DeFi does not have managing authority. Everything is done through a smart contract and stored on a blockchain. The users have the autonomy to switch to a new DApp without the need for any official papers too.
Unlike centralized finance, DeFi is much more transparent. For example, if you select Valco Trading which is a top crypto trading platform in India, you can easily see the hourly performance of hundreds of cryptocurrencies with just one click or tap. Every activity on cryptocurrency exchange is traceable. This is also easy for auditors and investigators.
Smart contracts of DeFi are characterized by a lack of intermediaries. One can build an application on smart contracts without the need for any third-party intermediary. This ensures uniqueness and more customization. Such features are absent in bank products and are unheard of in traditional assets.
The potential of decentralized finance (DeFi) in the financial sector is immense. It has unlocked many opportunities and possibilities to plug the loopholes between the fiat currencies and the existing financial system. The trends suggest that Bitcoin and other cryptocurrencies are going to have a very positive phase this year. Financial autonomy is a unique feature of DeFi and it can potentially disrupt the way we perceive money, buy, sell, and trade goods and services. The signs are healthier since the earlier skeptical attitudes of financial agencies are subsiding. Leading politicians like Donald Trump are promising more favorable crypto policies. Therefore, decentralized finance can effectively transform the functioning of major industries gradually just like computers did from the 1980s and 1990s.