With over $13 billion locked across them, Decentralized Finance or DeFi protocols are eyeing astronomical growth in the years to come. In offering a global, open substitute for every financial service the world uses – savings, loans, trading, insurance, and more – DeFi is poised to take blockchain’s promise of universal accessibility a step further.

What makes DeFi an immense success story is the disruption it offers to the present centralized financial domains worldwide, which lay all regulatory powers of demand, supplies, and currencies along with the possibility of bad monetary policymaking and economic downfall in the hands of banks and governments.

The DeFi or Open Finance Movement

Decentralized Finance or DeFi is a novel monetary system on the bloc which is built on public blockchains. Encompassing components such as protocols, digital assets, dApps, and Smart Contracts – all assembled on blockchain – DeFi offers a programmable and transparent financial network for anyone to use across geographical and political boundaries.

The vast and open-source network can be used by developers to create apps that enable an array of financial activities without the involvement of centralized institutions. DeFi holds immense potential to empower the global human population in terms of accessing basic financial services and open banking facilities without obstacles in the name of governance protocols.

What Can You Build Using DeFi?

DeFi utilizes algorithms either through code or smart contracts, which when deployed to blockchain enable DeFi apps to run without any human intervention at any level in the hierarchy. Therefore, anyone can create and use apps in the DeFi environment, which are different from traditional banking apps in terms of transparency, authorization, and security. 

dApps are a special kind of blockchain application that can also be used in the DeFi environment to provide the same networks and services to all users irrespective of geographical locations. One can access platforms such as PolkaFoundry for creating borderless and frictionless DeFi apps, leveraging the best of the thrilling DeFi ecosystem and true interoperability.

PolkaFoundry is a one-stop dApp factory that utilizes the unprecedented scalability of Polkadot and Substrate with unique UX-enabling features to appeal to a wider audience. It is EVM-compatible and one can straightforwardly migrate from Ethereum to manage identities, store files, and access Oracle data easily.

The number of avenues that open up on using a platform like PolkaFoundry for building in the DeFi ecosystem is impressive. You can create open lending platforms, NFT auction and marketplaces, cross-chain DEX via bridges, and DeFi derivatives driving innovations into the ecosystem. Also, dApps can utilize real-time event data and reliable randomness sources to determine prediction results, creating Prediction Markets hassle-free. TeaWork, a digital corporate hub for celebrating employee achievements, has been built on PolkaFoundry Biznet.

What Does the Current DeFi Ecosystem Look Like?

Presently, the DeFi ecosystem is defined by the following components:

Wallets and DeFi native front-ends

Mechanisms that enable end-users to store tokens and cryptocurrencies and communicate directly through transactions in the space

Decentralized Exchanges or DEX

These are distributed exchanges for an array of financial instruments – trading, lending, borrowing, yield farming, and derivatives

Oracles

These are decentralized networks providing reliable, untampered inputs and outputs for smart contracts on any blockchain. PolkaFoundry recently partnered with Kylin Network to provide high-quality Oracle Data to its dApps.

Currencies and Units of Value

Mostly stablecoins, which are currencies pegged to the value of another asset, for instance, the US Dollar.

The Future Roadmap – DeFi and Real-World Challenges

Open finance platforms are being adopted on a global scale not just because of their ease of operability and transparency, but also because blockchain has begun to shape the Fintech domain. DeFi has the potential to revolutionize the remittance market for foreign workers, loans and investment segments, online purchases, and more.

While DeFi has plenty of room for growth, it is beset with a set of challenges that need addressing. Foremost among them is the need for specialized knowledge to handle cryptocurrencies, security-related concerns, and UX issues with dApps that put burdens on users.

The Way Ahead

Solution creators have been taking control of this mammoth task. For instance, PolkaFoundry has been trying to address the problem of unrefined user experience dApps commonly face, opening up their use beyond the small crypto circle. Through its feature of a special signing key, it addresses both UX and security concerns on dApps, while allowing for flexible monetization strategies and an off-chain PolkaID service for secure management and access.

Even though not all DeFi products are bound to be successful, the horizon is all set for a tough competition to produce strong, reliable, and secure protocols to address the concerns of a wider audience pool, which makes it important to rely on a comprehensive production hub for DeFi applications.

Disclaimer: The information presented here does not constitute investment advice or an offer to invest. The statements, views, and opinions expressed in this article are solely those of the author/company and do not represent those of Bitcoinist. We strongly advise our readers to DYOR before investing in any cryptocurrency, blockchain project, or ICO, particularly those that guarantee profits. Furthermore, Bitcoinist does not guarantee or imply that the cryptocurrencies or projects published are legal in any specific reader’s location. It is the reader’s responsibility to know the laws regarding cryptocurrencies and ICOs in his or her country.