Top 10 Use Cases of Decentralized Finance (DeFi)
Everything in this digital world is getting digitized and decentralized. The world’s biggest sector of Finance is being decentralized by the arrival of DeFi - The new Decentralized Finance.
Unaware about the term DeFi? Refer our previous article to know about What is DeFi?
Here we are going to look at the major use cases of DeFi.
Major Use-cases of DeFi
DeFi is being applied in many verticals and listed here are the top use-cases of DeFi.
Borrowing and Lending
Peer-to-peer borrowing and lending is the most widely used application of DeFi ecosystem.DeFi allows users to take a loan without any applications review or a bank account. In some DeFi apps, the borrower need not find a lender, instead of the smart contract itself acts as lender, and interest is calculated based on supply and demand.In some other DeFi apps, a fixed interest rate is made for the loans.DeFi makes the process of lending and borrowing much easier and time-saving.
With DeFi, you are the only custodian of your own crypto assets. You can securely interact with decentralized applications for buying, selling, and transferring your cryptos by using crypto wallets such as MetaMask, Gnosis, Argent, and more. For Example MetaMask stores your password, seed phrases, private keys in an encrypted format that you can access anytime.
The significance of DeFi has made product developers build DeFi protocols directly for various verticals. Ethereum based games are becoming popular for the use-cases of DeFi because of their innovative incentive models.
For Example, PoolTogether is a no-loss DeFi audited game that enables users to purchase lottery tickets by depositing DAI stable coins.
The DeFi protocols paired with identity systems based on blockchain are ways to help locked-up users to access a globally true economic system.DeFi is key that reduces the people's collateralization requirements and helps assess creditworthiness through reputation and financial activity instead of income and homeownership.
This DeFi solution provides data privacy of personal identifying information along with open access. This implies that anyone with internet access can access DeFi applications from anywhere with complete control over their data and assets.
As DeFi is still in its infancy stage,it still faces risk around smart contract bugs and breaches. Since, many innovative insurance alternatives have arrived to assist users in buying coverage and protecting their holdings.
For Example Nexus Mutual provides smart contract cover that protects the unintended use of any smart contract codes.
This is all about betting on something that happens or not happens in the future, which includes decentralized prediction markets, insurance, and on-chains which is fully automated. Today these protocols are used to insure the bugs in a smart contract.
For example, Augur a DeFi protocol is a betting platform, features prediction markets, sports games, election results, and much more.
A stable coin is a cryptocurrency that is pegged to any stable asset or basket of assets such as fiat, gold, or maybe any other cryptocurrencies. These are originally developed to reduce the price volatility of cryptocurrency and to make blockchain a viable payment method.
Now, these stable coins find application in DeFi space for lending, borrowing, remittance payments, and also for institutional applications like Central Bank Digital Currency(CBDC)
As like stablecoins, synthetic assets are crypto-assets that offers exposure to other assets like gold,cryptos and fiats.These synthetic assets are collateralized by tokens which are locked into Ethereum-based smart contracts which comprise of built-in agreements and incentives.DeFi promises to combine all different smart contracts easily.
For Example, Synthetix is a protocol that implements a 750% collateralization ratio helping the network absorb price shocks.
Decentralized Exchanges are one in which peer-to-peer transaction of funds occurs without a central authority. As in DEX, the assets are not in the custody of the exchange platform, the risks such as hacking, price manipulation, and thefts are reduced. Thus DeFi space provides better operations of DEX platforms.
Some of the popular DEXs in the Defi space are Uniswap, Liquality, Airswap, and so on.
Tokens are digital assets created, issued, and managed on a blockchain network that is designed for secure and instant transfer. Tokenization is a native function of the Ethereum blockchain and cornerstones of decentralized finance. These tokens are the fuel to the network and also unlocks various economic possibilities.
These tokens are digital alternatives for users to access,trade and store values across the globe.
Some of the other use-cases of DeFi are
- Education and more.
Apart from the above fields, DeFi finds applications in all businesses to make decentralized finance.
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