Traditional finance is now entering a new age thanks to DeFi (Decentralized Finance). This new financial system aims to change the way we look at centralized finance entirely. Decentralized finance plays a big role in crypto assets, blockchain technology, and NFTs (Non-fungible tokens).
As a business owner, sorting out your finances with traditional banks is a given. However, DeFi proves that financial transactions can be done in other ways with other benefits. It provides new investment opportunities, lower transaction fees, and new financial technology that the majority of financial institutions and commercial banks cannot provide.
So, should your business invest in Defi? Let’s look at what it can provide for the average investor and see if it’s the right choice for you.
DeFi, or decentralized finance, is a term that refers to a group of applications that leverage public blockchain technology as a decentralized infrastructure for internet-native financial services and products. This developing new sub-sector of the global crypto markets already offers lending, borrowing, payments, trading, asset management, and insurance.
By dramatically decreasing expenses and allowing communities to regulate financial ecosystems, DeFi provides a wide range of financial services. Businesses can gain from exposure to this developing sector in a variety of ways, given the potential impact of DeFi on traditional finance and the several wonderful opportunities it affords. Stablecoins are critical in DeFi because they provide price stability and serve as a link between the blockchain world and traditional finance.
DeFi offers a new potential source of yield for cash stockpiles that are sitting dormant. Record-low interest rates, quantitative easing, and government stimulus programs have made it impossible to find meaningful yield in fixed income markets. Some companies are already experimenting with Bitcoin investments as part of their corporate treasury operations. However, DeFi is far broader and can provide lucrative return chances at times.
Based on demand for stable digital assets, DeFi stablecoin capital markets typically provide yields of 4% to 8%. DeFi applications with the greatest Total Value Locked (TVL) statistics, generally in the tens of billions of dollars, provide an excellent balance of technological security, smart protocol design, and return on investment.
Businesses can rely on USDC for deeper integration and faster interactions with the expanding digital economy, since recent OCC advice allows stablecoins to be completely integrated into corporate treasury operations. As the OCC published advise that US banks may use dollar-backed stablecoins as a payment mechanism, including stablecoins on public blockchains like USDC, USDC can be readily moved in and out of traditional financial accounts.
A New Way of Getting Finances
Businesses can readily leverage DeFi technologies such as lending and borrowing procedures to finance their operations. Small and medium-sized firms (SMEs), which sometimes struggle to obtain bank loans, are among the first to benefit from access to financing in DeFi marketplaces. DeFi can be an excellent choice for firms in developing regions such as Latin America, India, and Africa, where SMEs frequently lack adequate banking infrastructure to meet their financing requirements.
Businesses all across the world can gain access to decentralized financial services through DeFi lending protocols. While unsecured lending tests continue, firms should be prepared to lock up digital currency as collateral on DeFi services driven by smart contracts. They can then obtain loans against the collateral to help their business grow.
Blockchain is one of the most innovative and disruptive technologies in decades, with the potential to change financial markets and other industries. Adopting blockchain technology at this early stage will position firms ahead of the competition.
Blockchain technology has the potential to automate operations, eliminate superfluous intermediaries, save costs, assure high transparency, reduce human errors, and improve user experience.
DeFi is a fantastic approach for businesses to gain hands-on experience with blockchains, as implementing the technology for internal procedures can be complicated and time-consuming. As DeFi protocols and marketplaces grow, technological service providers such as Circle will assist enterprises in easily integrating blockchain technology into their company operations and reaping the benefits of DeFi.
The Financial Market is About to Change
Because it can address the old financial system’s six intrinsic problems: inefficiency, limited access, inability to scale quickly, opacity, centralized control, and interoperability. And because it is open source, the obstacles to innovators are reduced, fostering an entrepreneurial culture in which creators will be able to address and supply scalable solutions to a recognized financial need/gap.
Furthermore, while stakeholders do not yet see it, blockchain will enable an effective and real-time regulatory control environment. With clear regulations and an enabling regulatory environment in place, compliance costs would be lower, rendering the existing banking ecosystem obsolete.
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