DeFi
DeFi, stablecoins and widespread adoption, AND CIO
Raj Karkara, Chief Operating Officer of ZebPayCrypto has been a game changer in modern finance, transforming the way everyone perceives and conducts financial transactions. As it moves from being a technical tool and digital asset to the mainstream of finance, it has the potential to drive financial inclusion and empowering people excluded from formal education financial services.
Several key pillars of the crypto universe are contributing to this change, including the rise of decentralized finance (Challenge), stablecoins and the use of crypto tokens for peer-to-peer transactions.
The DeFi disruption
Decentralized finance (DeFi) platforms can improve the accessibility, transparency and efficiency of financial services. By taking advantage blockchain technology, DeFi platforms can provide multiple financial services such as lending, borrowing, and remittances. This can make finance more democratic and provide individuals with the opportunity to be part of an inclusive and transparent financial system.
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At its core, DeFi is a peer-to-peer network enabled by smart contracts that automate transactions. These contracts reduce costs, streamline processes and eliminate the need for middlemen. Smart contracts provide the ability to access various financial services to anyone with an internet connection, regardless of their geographic location or socio-economic status.
DeFi uses blockchain, a secure and immutable ledger technology where transactions are recorded and verified through numerous automated processes. This means that transactions can be traced and verified by anyone. Additionally, DeFi platforms offer multiple options to meet diverse user needs with their decentralized nature, ensuring users have greater control over their assets.
By effectively ensuring the reach of financial services to the underserved population, DeFi can bridge the gap between the banked and unbanked. Through DeFi platforms, people excluded from the traditional financial system can access loans, savings and other essential financial services. It helps automate processes and reduces transaction costs.
The role of stablecoins
The emergence of stablecoins has facilitated the use cases of crypto. At a fundamental level, stablecoins are digital assets pegged to real-world stable assets like fiat currencies or commodities and serve as a bridge between crypto and the stability that traditional fiat currencies offer. Crypto offers fast transactions on the blockchain and, combined with the stability of fiat, will be a game changer. On the other hand, stablecoins smooth out price fluctuations and provide a reliable exchange rate that builds trust. Stablecoins are designed to mimic the price stability of fiat currencies like the US dollar, euro, and others.
By pegging their value to these assets, stablecoins offer users the stability benefits and efficiency of blockchain. For every stablecoin unit in circulation, an equivalent amount of reserve asset is stored, ensuring direct fixation. At the same time, crypto-backed stablecoins are backed by a pool of other crypto assets rather than fiat currencies. Smart contracts and algorithms govern the ratio and keep it stable.
Algorithmic stablecoins rely on mathematical algorithms and supply adjustments to maintain a stable value without requiring collateral reserves. They are stable, provide users with a reliable medium of exchange and store of value, and can be used to send money to family and friends, or make global online payments in some cases.
This system is transparent and open to audit, allowing users to independently verify transactions and collateral held, playing a vital role in wider adoption.
Achieving financial inclusion
The ability to break down walls and make financial products accessible to everyone with a single click is a key advantage.
By providing tools for transparent and secure transactions, cryptocurrencies can ensure that the unbanked participate in the global financial system on their terms. From migrant workers sending remittances home to entrepreneurs seeking capital for their businesses, cryptocurrencies can make it easier and more efficient to dismantle barriers and help create an inclusive and equitable financial landscape.
In areas where access to financial services is limited, crypto offers a secure platform to store and transfer money through a wallet. Crypto transfers are fast and can be done with just a smartphone and a working internet connection. In regions where traditional financial institutions are rare, cryptocurrencies can offer a secure platform to store and transfer wealth with a crypto wallet.
Crypto facilitates cross-border transactions by eliminating high fees and long processing times and facilitating borderless transactions with minimal costs, thereby enabling seamless money transfers on a global scale.
Crypto provides access to essential financial services, such as credit savings accounts, through decentralized applications (DApps). This can help the insurance industry reduce instances of fraud and increase transparency. By using the immutable ledger of blockchain, insurance companies can detect fraudulent claims, while smart contracts can automate underwriting processes. Some crypto companies often allow users to earn interest on their crypto holdings or borrow money.
There is no doubt that crypto is going mainstream, fueled by DeFi, stablecoins, and major macroeconomic transformations. It is changing daily transactions, democratizing access to financial services and reshaping the global economy. Government, regulators and crypto companies must work in tandem and ensure that regulation facilitates the spread of crypto use. By fostering collaboration, innovation and responsible stewardship, we can harness the full potential of crypto and chart a path to a more inclusive and prosperous future.
Disclaimer: The opinions expressed are those of the author and ETCIO does not necessarily endorse them. ETCIO shall not be liable for any damage caused to any person/organization directly or indirectly.
The author is Raj Karkara, COO of ZebPay.
- Published on June 28, 2024 at 4:08 PM IST
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