2. How can decentralized finance be applied?

Advocates say DeFi has the potential to transform the lives of the world’s unbanked — and make life more affordable for everyone else.

Let’s take a look at the remittances market, in which foreign workers send billions of dollars across borders to their loved ones back home every year. The fees they face for doing this are often extortionate — eating into their modest income. DeFi services have the potential to slash these costs by more than 50%. Not only does this offer an incentive for an employee to earn more and be more productive, but it will also help support small businesses and economies on the other side of the world.

Loans are another pain point that can be addressed thanks to DeFi. Right now, it can be near impossible for the unbanked to borrow money, often because they lack credit records and history with a banking institution. DeFi platforms connect borrowers and lenders directly, eliminate credit checks, and enable digital assets to be collateralized.

Other forms of decentralized finance include stablecoins, a type of digital currency that shields consumers against the volatility of crypto by being pegged to another asset such as dollars or gold. Tokenization means real-world assets such as art, property and commodities can be owned and traded on blockchain, while decentralized exchanges mean users hold on to their funds at all times — reducing the risk of cyberattacks, a scourge that many centralized platforms have been struggling to shake off.