Decentralized finance (DeFi) is an industry that provides a range of benefits to investors. From permissionless access to the complete transparency of blockchain, these systems allow users a new way to trade, buy, sell, and exchange.
With a total value of $40 billion (as of Feb 2021) locked in different protocols, the popularity of DeFi has become incredibly visible over recent months.
Processing from a small financial system into a global movement, DeFi has now reached every corner of our world. However, there are some apparent limitations of DeFi. As it’s a decentralized system, it cannot interact with centralized assets, meaning that stock options, commodities, and indices were off the table.
DeFiChain, a blockchain system, is set to change that, with its introduction of decentralized assets bridging the gap. In this article, we’ll be exploring the landscape of DeFi, demonstrating how the recent DeFiChain developments are set to innovate the industry as a whole and drive the usability of DeFi.
How has the DeFi Landscape changed?
Decentralized finance began with the creation of Bitcoin, with the creator intending it to be a digital currency that could be used without having to rely on centralized intermediaries. What started with a rejection of centralized banking and governance has grown into an incredibly rich and comprehensive ecosystem.
Currently, there are over 18,000 cryptocurrencies alongside Bitcoin as of July 2022. The second-largest cryptocurrency is Ethereum, which has a total market cap of over $140 billion, accounting for 15.3% of the total crypto market cap. One of the main reasons that Ethereum has grown to be so popular is the ease of creating decentralized applications on this system.
Ethereum has a fantastic level of documentation, comprehensive unit test frameworks, debuggers, critical developer tools, and a range of tutorials and other learning materials. Quite simply, it has absolutely everything that a developer would need when creating a decentralized application.
The dApp industry has steadily grown over recent years, spanning across financial, healthcare, education, and even property inventions. The versatility of the system, and the benefits of bringing blockchain to different industries, have made the creation of dApps a useful way of expanding the utility of this ecosystem.
DeFi has become all-encompassing, spanning across different industries and weaving its way onto the world’s stage. Yet, while decentralized finance does have a range of benefits, there are also areas in which it falls short. One of these main roadblocks is the fact that, as a decentralized system, it currently has no way of allowing investors to trade stocks on its platforms.
This is due to the fact that stocks are a centralized unit, making them incompatible with DeFi. While this was an issue that seemed insurmountable, the arrival of decentralized assets on the DeFiChain blockchain is set to change the industry forever.
Let’s take a look at how DeFiChain is combating this issue for DeFi.
How DeFiChain’s Decentralized Assets boost the utility of DeFi
While investors in DeFi can put money into their favorite cryptocurrencies and dApps, they have always fallen short at accessing actual stocks. However, with DeFiChain’s development of decentralized assets, this is all set to change.
A decentralized asset, also known as dAsset or dToken, is a token on the DeFiChain blockchain that gives you price exposure (not ownership) to real-world stocks. For the stocks, TSLA, APPL, FB, there exist dTSLA, dAPPL, dFB, each of which attempts to mirror the price of the real stock. Anyone can mint new dTokens by depositing BTC, DFI, USDT, USDC, or DUSD as collateral in the DeFiChain Vault.
These creations essentially mean that users of DeFiChain can buy a decentralized asset that aims to reflect the real asset, providing them with a method of trading stocks on a decentralized system. They seamlessly allow investors to diversify their portfolios without leaving the DeFi ecosystem.
Any user on the platform is able to mint tokens, with interest rates being based on the amount of collateral provided. These dAssets are then tradable on decentralized exchanges, meaning that users are able to trade their dTokens just like they would with real stocks. People who couldn’t buy US stocks due to geographical restrictions or other limitations can get price exposure to their favorite assets from anywhere in the world.
Just like that, DeFiChain bridges the impossible gap between centralized and decentralized systems without compromising their DeFi platform with centralism. With DeFiChain, what was once thought impossible has become a working reality.
Moving towards passive income
One central aspect that is rarely achieved within centralized systems is passive income. While there are some elements to stock trading that could be considered passive income streams, like dividend payments, they are typically only around 5%, which is far less than one would need to see any substantial returns.
DeFi has a solution for this, found within any proof-of-stake system. Typically, users can put their proof-of-stake cryptocurrencies into a liquidity pool. These liquidity pools allow the proof-of-stake coins to validate transactions more quickly, allowing for scalability and rapid transaction processing.
The development of POS cryptocurrencies has solved the central problem that was impacting Ethereum, which has notoriously high ‘gas fees’ for completing transactions. As this network can only process around 30 transactions per second, with a potential demand seeking upwards of 100,000 transactions per second, there is a massive queue for processing on this blockchain.
To push transactions to the front of the queue and make sure that they are safely recorded into the next block, Ethereum asks users to pay a gas fee. This has made development within dApplications costly, as users that want instant transactions will always have to pay a fee. POS cryptocurrencies allow users to process many more transactions per second.
For example, Solana can produce 50,000 transactions each second, meaning there is never really a queue to process your transaction, there is almost no gas fee. This is achieved by creating large liquidity pools, with these pools filled with users’ cryptocurrency being used to validate transactions quickly.
In return for putting their POS crypto into these liquidity pools, users are given a reward in terms of passive income. Over time, you’ll be rewarded with interest in the cryptocurrency that you’ve put in. Whole industries have arisen from this ‘staking’ model, with people seeking to maximize their yields in a practice that’s known as yield farming.
People who stake crypto can expect to get anywhere from 10% – 100% annualized returns on their investment, making this an incredible opportunity for DeFi users.
How DeFiChain Takes This Further
DeFiChain builds upon typical staking protocols and offers even further utility for its investors. While a traditional investor, after buying a stock, will only make money once they sell it at a profit, DeFiChain is changing the game. Once a user buys one of their dToken assets, they’re able to then put that into a liquidity mining pool.
Not only do they gain a profit from their dToken going up in value, but they are also able to get a passive income from putting their dAssets into these liquidity pools. This dual income strategy takes what’s phenomenal about yields within DeFi systems and brings it to dAssets.
With this integration, DeFiChain essentially innovates the field of DeFi, providing a whole new way to make money when taking on decentralized ecosystems.
Final Thoughts
With the introduction of dAssets, DeFiChain has created a new investment pathway for DeFi that radically shifts what is possible within these ecosystems. What’s more, considering that these dTokens can then be entered into liquidity mining pools for additional rewards, this system also creates a new way of earning passive income.
The benefits of DeFiChain for investors are impressive, creating new systems and then pushing that system as far as possible for user benefit. With future plans to bring the actual stock price and the dAsset price closer than ever, through their DeFiChain Improvement Proposal (DFIP), this system will be incredibly advantageous to users.
While still only a young blockchain, with innovative features, exciting updates, and future foresight, DeFiChain is shaping up to be an industry-changing blockchain ecosystem.
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