For Mainstreaming Blockchain, DeFi Leads the Way

Decentralized finance has emerged as a leading force for reinventing traditional financial instruments such as loans and interest-earning accounts.

One often-heard criticism of cryptocurrencies and the blockchain technology that underpins them is a dearth of practical use cases for their application in the real world. Beyond some niche cafes, few retailers will accept digital currencies due to the difficulty of off-ramping into fiat, the time and energy needed to convert and receive coins, and the obvious fear related to price volatility (no one wants to find out that the bitcoins they used to buy that pizza a year ago are now worth millions). Despite much talk, bankers and institutional investors especially remain conservative in their approach, citing a lack of regulatory oversight, and the failure of Bitcoin to evolve as a unit of account, medium of exchange or store of value, not to mention the absence of regular accountability and central bank guarantees.

While many of these concerns remain valid, the emergence of DeFi is beginning to spawn a pipeline of very real applications. DeFi, or decentralized finance, is recreating traditional financial instruments such as loans and interest-earning accounts in an architecture that is free from third parties and centralized systems. As an industry, DeFi is growing rapidly — in one sense, too rapidly: the constant flow of new tools and platforms is causing development to be spread too thinly across multiple blockchain technologies and cryptocurrencies. A recent DeFi user report commissioned by ConsenSys Codefi on the use of cryptocurrencies and DeFi dispels a few myths. Firstly, it turns out that people are not solely motivated by speculation and potential profit. Cryptocurrency holders (or hodlrs as they are referred to) are more often interested in the underlying technology and how it can be applied for practical means. Hodlrs follow discussions online and go wherever building is happening. Once they have discovered DeFi, hodlrs remain cautious while experimenting to learn and grow.