Since its inception, decentralized finance (DeFi) has become a disruptor in finance and technology. Dan Schatt of Earnity noted that the financial system has facilitated the innovation of newer financial concepts and helped give rise to better alternatives to traditional financial practices.
Below are a few of the use cases of DeFi that serve the biggest impact.
One of the most practical use cases of DeFi is asset management. With DeFi protocols, users can manage their assets completely decentralized manner, impacting everything from lending and borrowing platforms to Stablecoins and tokenized BTC. In addition, DeFi initiatives provide users with tools to buy, sell, and transfer digital assets. On top of that, users can even earn from transactions involving their digital assets.
Another widespread use case of DeFi is loans. Platforms like Compound and MakerDAO offer decentralized lending services that allow users to take out loans using their digital assets as collateral. These applications also allow users to earn on their deposited digital assets. Additionally, some DeFi protocols offer flash loans, which are short-term loans that are repaid in the same transaction. Earnity’s Dan Schatt states that the blockchain technology, which DeFi is built upon, can facilitate loans with lower counterparty risk, come with cheaper costs, can be completed more quickly, and is not bounded by geographical limitations.
Decentralized Autonomous Organizations (DAO)
DAOs are decentralized autonomous organizations that cooperate according to transparent rules encoded in the blockchain technology, eliminating the need for a central authority. In legacy financial services, centralized financial organizations take on a massive role. They administer the core financial operations and decision-making, including fundraising, asset management, compliance, and others. DAOs, meanwhile, are not required to adhere to the limitations imposed by central governments or agencies.
One of the most important but often overlooked use cases of DeFi is analytics. Some DeFi platforms have been developed to provide users with comprehensive data and analytics on the growing ecosystem. It allows users to make informed decisions about which protocols to use and how to best take advantage of the opportunities available in the DeFi space.