Traditional banks are bureaucratic. They’re expensive to run, too.
They take too long to process transactions—sometimes days—and have excluded many people from the financial system due to their stringent requirements.
Here are some of the benefits of decentralized finance.
It is permissionless.
DeFi opens the financial system to everyone regardless of race, income, culture, or geographic location.
All anyone needs is a connection to the internet via a smartphone or computer.
In 2018, the World Bank estimated that some 20% of the world’s population has no access to banking services.
Mostly, this is because they lack required government-issued identification cards.
There are several DeFi platforms that allow these people to access banking services.
For example, you can take out a Maker loan without identification or even a credit score.
It offers interest rates for investors.
You can keep your assets like a traditional savings account if you wish, but DeFi also offers the chance to earn interest on your assets.
Platforms like Compound and Aave will let you deposit your cryptocurrency and then loan it out to borrowers.
At some agreed-upon time, you collect your interest on that cryptocurrency and can return your capital to the system.
Compound offers up to 4.3% interest on deposits from some tokens
and Aave is offering as much as 5.73%.
Compared to the pittance (0.06% or 0.07%) offered by traditional
banking establishments for savings accounts, this is an amazingly high interest rate. You can see why people are switching from traditional
banking to DeFi.
If offers control over your own finances.
No one can ban you from a DeFi protocol. You have control over your
own finances instead of depending on a third party to approve your
loan.
While you do have to deposit your funds into the platform, what happens to those funds is up to you.
The underlying smart contract takes the place of the traditional human intermediary.
It offers heightened transparency.
DeFi allows a far greater degree of openness and accessibility.
Since most of the DeFi protocols are built on the public ledger of a blockchain, every activity is available to the public.
Anyone can view any transaction, but these transactions are not tied to any individual the way they are with a traditional bank.
Instead, DeFi accounts list only numerical addresses.
Also, users with programming knowledge can access most of the source code to audit or build upon, since these are open-source codes.
This type of code is of a higher quality and far more secure than proprietary software, thanks to community interaction.
It offers increased access.
One of the biggest reasons people without bank accounts can’t make financial transactions is that they lack documentation proving their identity, such as government-issued identification cards, credit cards, or passports.
This also prevents them from enjoying social benefits like owning property, which severly limits their opportunity for growth.
That barrier is lifted when you use DeFi.
“Digital identities,” says Entrepreneur, “serve one of the essential components of DeFi.”
A digital identity may be a profile that is linked to a device’s IP address, or a randomly generated unique ID.
It could also be tied to a user ID and password.
With this identification, any user anywhere in the world could buy, sell, loan, or borroy cryptocurrency.
