Exploring the benefits, challenges and benefits of the DeFi industry

DeFi has been praised as a revolutionary financial system that is open, borderless, and enables people to interact directly with each other. cryptocurrency,

Traditional finance now uses a network of banks, central institutions and multiple intermediaries.

Nevertheless, despite the many benefits that DeFi offers, it also presents a distinct set of risks and constraints that continue to divide financial professionals on the long-term viability of this decentralized global financial system that is currently expanding rapidly. doing.

Benefits of DeFi

Imagine a financial system where the primary duty of the user is to maintain control over his money and the confidentiality of his transactions.

DeFi has seen the use of cryptocurrencies around the world at a breakneck velocity to transact electricity, carry out transactions between users via smart contracts, and facilitate borrowing or lending.

DeFi offers the highest level of security due to the immutable transaction capability provided by blockchain technology, eliminating the need for central banks to control all this activity.

In other words, by using cryptocurrencies for transactions, DeFi eliminates the shortcomings of traditional financing and opens up a whole new universe of opportunities for cryptocurrency users.

In addition, it democratizes finance by allowing anyone to join the global economy via the Internet and vote on governance issues based on the user community already existing in many DeFi initiatives.

Issues affecting the DeFi sector

DeFi has faced difficulties that could hinder its spread around the world, as is the case with every new technology advancement.

In the rapidly growing DeFi sector, where dozens of blockchain startups are competing for consumers and market share, there have been more incidents of unscrupulous operators stealing investors’ money and running away with it.

All transactions that take place online have resulted in cybercriminals also focusing on projects with potential security flaws and continue to target consumers who are not vigilant with their crypto holdings.

According to blockchain analytics firm Chainalysis, these hostile parties were able to steal a record $14 billion in 2021, with a large portion of these assets coming from DeFi initiatives or their users.

The DeFi sector and the larger crypto community, on the other hand, are constantly developing new strategies to mitigate the vulnerability of smart contracts and adopting a self-regulatory framework designed to prevent such attacks, thereby reducing the risk of attacks on this ground. Investor confidence in breaking is increasing. financial system.

Regulatory burden is a potential threat

Given the above issues and its threat to the current global financial system, it is no surprise that governments around the world are concerned about the emergence of DeFi.

One only needs to see what the US Federal Reserve did when the COVID-19 outbreak got an idea of ​​the latter’s backdrop.

In an effort to support the domestic economy, the central bank began printing billions of dollars to buy corporate bonds and keep overall interest rates at multi-year lows.

But even so, it has fueled massive inflation, and as a result, the US economy is now facing an imminent recession.

In contrast, DeFi operates independently of the US Federal Reserve and all other central banks, giving citizens a degree of non-intervention that allows market forces to steer the world economy.

Instead of being susceptible to sudden interest rate adjustments as is the case with central banks around the world, it gives crypto holders control over the APY on offer and the lending interest rates that apply.

Although most developing countries are concerned about the transfer of value from traditional financial systems to DeFi, a number of weak regulations are being planned that threaten to cripple the blossoming DeFi space.

While the narrative states that these rules are meant to protect the interests of investors, a closer look at the proposed draft rules reveals sinister intentions to curtail or restrict innovation in the DeFi space.

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