The fintech industry is growing and booming. This growth has allowed the development of multiple finance platforms. One such platform which has evolved over a period of time is DeFi. Even though DeFi is there in the market for quite some time, we still label it as relatively new. With more than 83 USD dollars charted into the smart contracts, we can say DeFi has got a huge volume. Analysts are already upbeat on the future of defi in fintech. The fact is future of Defi in fintech is quite bright, and it can be tagged as a potential game changer. This article will cover the future of Defi in fintech in detail. We will also identify the six ways through which DeFi will change the FinTech industry in 2023.
What is DeFI?
Before we go further, it will be good to know a little bit about DeFi. DeFi stands for decentralized finance. Since it is decentralized, it fits in perfectly on a blockchain platform. This was the core reason behind the rise of DeFi in FinTech, amongst many other features.
DeFi provides financial services create through blockchain technologies. We can just think about it as a concept of a decentralized banking platform using blockchain technologies. Just like a conventional banking user, in this case, also the users will be able to perform financial transactions from anywhere, at any time, and more importantly by anyone. With this level of decentralization, we can say that future of Fintech is DeFi. The rise of DeFi in Fintech was to leverage the benefits of the blockchain platform and use it for financial services.
We might ask, that even conventional banking provides online banking facilities which provide the same benefits to the users. The answer is that DeFi provides these benefits to its users, without any intermediaries in between. In other words, no brokerage or commission needs to be paid by the users, unlike in conventional banking where platform or gateway charges are there.
With the rise of DeFi in Fintech, we can soon see a massive shift of conventional banking users to the blockchain platform. DeFi develops the complete ecosystem for financial services on the blockchain platform without any intermediaries involved, that is why we say the future of DeFi in Fintech is quite bright. With a well-developed ecosystem, Defi allows a higher level of accessibility, making cross-boundary or cross-market transactions possible.
DeFi was introduced to the blockchain world in 2018 by a segment of Ethereum Developers. The idea was to develop a financial ecosystem, which will provide equal opportunity to the users, irrespective of their location, requirements, and transaction volumes. Unlike conventional banking, Defi gives more decision-making power to its users.
With the rapid rise of DeFi in Fintech, multiple companies have already adopted it. This includes Aave, Synthetix, Bancor, Uniswap, and Badger. Professionals with experience in Defi app development are in high demand in a Defi development company.
Ways Through Which Defi Will Redefine The Fintech Industry
Here we list 6 ways through which Defi will impact the Fintech industry. These 6 ways will be instrumental in determining the future of Defi in Fintech.
Removal of Middlemen/Intermediaries:
With smart contracts in place, Defi will remove the requirements of middlemen or intermediaries, which currently exists in conventional banking systems. No middlemen would mean no commissions and brokerage, which in turn will reduce the transaction fees. This would also mean a safer financial eco-space.
Smart contracts will be used for settlements and transactions. The best part is, that smart contracts can be create as per the terms of the users, unlike in conventional banking where intermediaries make most of the decisions such as transaction charges, commissions, and settlement criteria. An environment sans middlemen will be the future of defi in fintech.
Automation Of Financial Services:
DeFi will automate the financial services completely. This will be done with the help of blockchain and smart contracts. For example, if conditions mentioned in a smart contract are made, then the transaction will automatically get execute without any user intervention. On the contrary, if the condition is not met, the transaction will not be execute.
A big question is how this will help. It will help in multiple ways. It will improve the processing speed without waiting for user intervention. This will reduce operational costs. The transactions will be accurate, as they will be execute only if the given conditions are true. Overall, it will provide an improved customer experience. Automation definitely will define the future of DeFi in Fintech.
Decentralized Model:
With Web 3.0, DeFi will provide decentralized finance services. This would eliminate the requirement of a centralized finance model, as we have in conventional banking models. Decentralization has its benefits, and will directly contribute to the rise of Defi in Fintech.
As part of decentralized services, a user will be able to access financial services from anywhere, irrespective of who they are. Decentralization also provides the users extended control over their assets. The user gets all this, while the sensitive information is store with him. A decentralized finance model will define the future of DeFi in Fintech, with enhanced user flexibility.
DeFi Apps:
By 2023, the blockchain market will be flood by Defi apps. The DeFi app market will grow owing to the large-scale adoption of the DeFi platform for financial services. Thus, we can see users migrating from conventional banking or finance apps to Defi apps, for availing financial services.
Currently, multiple Defi apps are available, that includes central exchange apps, lending instrument apps, stablecoins, etc. However, the usage and adoption of these apps are comparatively less, as Defi as a platform is still at a nascent stage. However, things could change by 2023.
Defi AI:
Artificial intelligence in Defi is going to redefine the overall Defi platform in the future. AI-based DeFI solutions in Fintech will have cognitive capabilities, which can run without any human intervention or can think like a human.
DeFi AI is based on machine learning, Big Data, Cloud, and Distributed ledger technology. As we have mentioned that DeFi is still at a very early stage, and there is not enough data available for machine learning. However, as the Defi market grows, the AI-based Defi app market will grow as well.
Cloud-based Defi:
In the future transactions will be more flexible with cloud-based Defi services. A true decentralization could be achieve only through the transition to the cloud, which will allow users to transact on the go. Already, cloud AliCloud and AWS have started offering their platform for Defi apps. Even the blockchain nodes that will act as decentralized exchanges could be keep on the cloud.
The best part is blockchain algorithm will ensure secure peer-to-peer transactions even on the cloud. Ali cloud is already offering blockchain as a service (BaaS), which can be leverage by developers for developing cloud-based Defi apps. In terms of Fintech, we know the future is Cloud, and the same will be true for DeFI as well.
