A lot of people are scared of the word “DeFi”. They think it’s some kind of dangerous or risky investment that will lead to nothing but losses, and they want no part in it.
But the truth is, DeFi isn’t a bad thing at all. In fact, there are lots of good reasons for investing in DeFi - and we might be on the verge of a whole new era where DeFi becomes completely mainstream! Let me tell you about these challenges - and how you can get started with your own investments today!
What is DeFi?
DeFi stands for “Decentralized Finance”, and it basically means using an open finance infrastructure without intermediaries. Let’s say you want to get a loan from one of your buddies. In the past, you might have written up a contract which both of you would sign - and then, when needed, go through the hassle of getting a notary involved in order to verify that this document wasn’t forged or modified during transmission.
With DeFi, all you need to do is send them some cryptocurrency - maybe Ether or DAI - and voilà! The smart contract sees that payment coming in and automatically executes the loan agreement. See how that was easy?
DeFi is often also called “decentralized finance”, but really it’s just financial transactions made on the blockchain. These days there are lots of different DeFi apps that allow you to do all kinds of amazing things with crypto - from getting a loan or collateralizing your assets for a loan, to borrowing DAI to pay off your mortgage. So if you want to get started with DeFi, all you need is some cryptocurrency and an internet connection!
5 Great Reasons To Invest In DeFi
But enough about how decentralized finance works - let’s talk about why it might be a great idea for you to invest in this space!
1. Cryptocurrency Is All The Rage
Right Now If you want to get rich, there are lots of different strategies that will work. One of the most popular strategies is to invest in digital assets right now while they’re still cheap - and wait until they go up in value by several orders of magnitude! This strategy is called “buy low, sell high” - but it works even better if you can buy them when they’re really low AND sell them when the price goes way up. And this is exactly what DeFi promises - because crypto prices are on the rise all across the board.
2. Investing In A Fast-Growing Industry
Another great reason to consider investing in DeFi is that not only are crypto prices on the rise, but people are also getting more and more excited about decentralized applications every day. Here’s a little story to illustrate this...
Remember when Bitcoin became popular, and everyone started talking about it on the news? Well, all of a sudden tons of people wanted to invest in bitcoin - but they found out that there was no easy way to do it! So they went to their banks or investment advisors, only to be told that “you can’t invest in bitcoin, because it is too risky”. This made them even more upset - which caused the price of Bitcoin to go up even further!
So now you have two forces operating at the same time: Crypto prices going up makes investors even more excited - and at the same time, the lack of easy access to cryptocurrency means that investors have to jump through extra hoops just to get started. Both these things combined will cause DeFi apps and services to explode in popularity relatively soon!
3. The Unlocking Of Institutional Capital
Now that big institutions are finally realizing how much money they’ve been missing out on all this while by ignoring crypto, you can bet your bottom dollar that a major wave of capital will be flowing into this space once they figure out how to do it! And when institutional capital moves into the market, prices go up - often exponentially.
4. Crypto Is The Future!
The best reason of all to invest in DeFi right now? Because cryptocurrencies are the future! They make it possible for anybody, anywhere, with any kind of skill set, to contribute value to our global community. And they allow us to transact with each other directly - without needing a middleman or intermediary! As history has shown time and again, empowering individuals is what leads to widespread prosperity and growth in any given society. And decentralized finance is the next step in this evolution - it has the potential to create a truly global economy that’s not controlled by any one person or institution.
5. No More Payment Delays Or Financial Crises With DeFi
Decentralized finance offers something else that traditional finance does not: If all goes well, there will never be another financial crisis in your lifetime! This is because the DeFi markets never rely on a single entity - instead, they follow what’s called “the wisdom of the crowd”. In fact, these markets are so decentralized that even if all of Silicon Valley were to disappear from the face of the Earth tomorrow - there would still be people willing and able to make loans, invest in blockchain startups, and create new financial products for DeFi.
Big Challenges With Decentralized Finance
One of the biggest problems with DeFi right now is that there are way too many things that can go wrong. Here are just a few of them:
1) Regulatory Compliance Issues
DeFi apps have to deal with more regulatory hoops than traditional finance does. And so far, they haven’t done a very good job at it... According to some critics, there isn’t enough legal clarity about how these financial products fall under existing laws - especially when it comes to consumer protection.
2) Fraud And Vulnerability Of Smart Contracts
Another big problem is that if anything goes wrong, nobody has your back - because smart contracts don't have anyone on the other side! What this means is that if you try to break a smart contract and take someone else's money, there isn’t much they can do about it …
3) Unpredictability Of The DeFi Market
Last but not least: There is no such thing as a “stablecoin” in the traditional finance world… And this has been a huge problem with blockchain - because cryptocurrencies are extremely volatile.
Reference:
Good article, maybe the MILK token would be a good DEFI token?