2020: The Year Of Wide DeFi Usage By Various Sectors

As the new decade starts, a new trend starts to flood the global financial system. This trend is decentralized finance (DeFi) protocols.

Decentralized finance is a financial software built on blockchain which allows anyone to easily piece together digital assets and financial smart contracts. DeFi may be compared to a Lego system in finance.

DeFi Pulse, an analytics site which monitors the sector’s growth, shows that the DeFi ecosystem reached its peak in 2019, reaching over $600 million in June. In 2020, the value of the funds locked more than doubled, reaching $1.2 billion.

The potential of DeFi protocols

Financial crises, such as the one of 2008, show that traditional financial system is full of drawbacks. Decentralized finance proposes a solution for such problems.

DeFi also has the potential of boosting innovation and enhance operational efficiencies beyond finance industry. As DeFi applications find more use cases in various sectors and industries, more and more investments are steadily coming to the DeFi ecosystem.

With the advent of MakerDAO in 2018 the DeFi ecosystem has largely been populated by Ethereum-based protocols. However, some reports suggest that diversity is on the horizon as the sector matures and increases in liquidity.

From decentralized credit and lending systems, predictions markets and asset management, DeFi’s applications have attracted attention, as they are capable of enabling multiple efficiencies. As DeFi soulitons continue to conquer the market, bringing about financial inclusion and empowerment, here is an overview of the sectors where DeFi is flourishing in 2020.

Prediction markets

Prediction markets are developed for researchers, speculators and traders who want to bet on future events. The predictions may be of any kind, exchange averages, quarterly sales reports of a certain company, elections, commodity prices and others.

One of such companies leveraging Ethereum blockchain to bring decentralization to its sector is Veil, which is built on top of Augur (Ethereum’s major prediction market protocol) which allows anyone to create, report and trade in their predictions.

From politics, finance, sports and global events, the Augur predictions market can appropriately rule on the occurrence of real-time events while providing trustless communication and bet settlements on a decentralized network.

Another company leading the prediction market is Gnosis. With Gnosis, anyone can build customized forecasting applications with conditional tokens which make it possible to trade the outcome of an event.

Digital wallets and asset management

If we compare blockchain to the internet, then digital wallets are browsers. To put it simply, digital wallets are gateways to blockchain, as all the interactions with blockchain are made on them. However, it is challenging to maintain balance between simplicity and security when creating digital wallets.

Also, owners of digital wallets must have accurate knowledge of private and public keys, as any mistakes in their management may cause irreversible losses of the wallet’s contents. Moreover, the steep learning curve, not to mention technical talks about hot and cold wallets, is mostly slips out of most people’s attention.

These issues may hinder mass adoption. However, DeFi tools can be leveraged to boost simplicity, when it comes to asset management on a digital wallet.

One of good examples of how this can be accomplished is MetaMask. The company has built a platform which enables interactions with distributed networks on a simple browser. This means that an Ethereum decentralized applications can be run on a browser without the need for deploying the full Ethereum node. Users can also create a wallet on their browser in merely 30 seconds without giving up personal data.

Balance — an Ethereum wallet developing compamny which is working to create a simple, user-friendly interface for an open-source financial system — is also dominating this sector. In terms of security and simplicity, Argent has achieved both, giving users full control of the wallet. Users also can create easy-to-read wallet addresses unlike the complex ciphers found in most digital wallets.

Another application which is in a couple of steps from becoming a decentralized bank is Zerion. The company has developed a simple user interface with support of several wallets, not to mention a thorough transaction list of users’ DeFi investments.

Insurance

Managing a digital wallet may be hard for most people, as hacks or simple mistakes with private keys or addresses to which crypto is sent may lead to irreversible loss of funds.

Therefore, DeFi insurance is a good way of providing users a decentralized experience similar to that provided by traditional companies. DeFi insurance protocols such as Etherisc can be used to create risk transfer solutions.

Under certain circumstances such as weather calamities, flight delays or attack from hackers, Etherisc ensures self-execution of a smart contract which distributes immediate payouts. Nexus Mutual is also implementing DeFi insurance, but instead of only catering for risky events, they protect users from failures in smart contracts.

By joining funds of several individuals in one smart contract, several people share their risks, thus eliminating the need for an intermediate insurance company. As a result, DeFi is also making insurance payouts more cost-effective.

Identity and KYC

In a digital world the most important data is personal data. However, as privacy decreases steadily, while such data is increasingly being regarded as the new money.

Various online businesses like exchange platforms and even social media start to ask users for their passport and national identification documents to prove nationality or address for verification. The caveat here is that most people are unaware that personal data stored in a centralized way can easily be stolen and sold to third parties, especially when users have weak passwords.

Decentralized identifiers easily solve this problem by allowing users to create and manage their data, thus mitigating the risks imposed by centralized storages.

Selfkey, for example, offers decentralized identifiers which not only eliminate the need for centralized authorities but also gives users self-sovereignity over their data. Instead of giving all their data to online platforms, Selfkey users can select data they can disclose dureing authentication process.

Other companies creating tools to enable online data privacy include Civic, a wallet provider for secure crypto and personal data management; Telegram Passport, providing unified authorization for online identity verification developed by the creators of the Telegram messaging app and Telegram Open Network; and uPort, a company creating scalable and safe data exchanges.

Freelance markets and payments

Freelance work is often considered as future of work. However, as the number of freelancers grows, payments for their work are becoming more challenging.

As freelance platforms often delay payments and impose high fees on freelancers for their services, workers have to change platforms. DeFi application can solve this problem.

Also, with instant and global crypto payments freelance economy can get rid of third-party service providers who charge sky-high fees. One of the companies pioneering decentralized finance in the freelance and payments sector is Gitcoin, which provides a marketplace for open-source development. When an open-source project is completed, funds are distributed to developers who contributed to the project.

Ethlance also makes life for freelancers easier with its autonomous platform which connects freelancers to employers with zero fees and free membership. Freelancers can also use services like the Ink Protocol to access a decentralized payment system which can be integrated with any marketplace. The platform allows for peer-to-peer transactions with a reputation system which can be imported or exported for use on various marketplaces.

The decentralized finance sector is promising

As current global financial system is plagued with inefficiencies, decentralized finance tools offer solutions for them, being able to eliminate cybercrime, increase liquidity and reduce costs. Moreover, DeFi protocols can give everyone access to quality financial services no matter their status or location.

As market analytics suggest, the value of Ethereum locked in DeFi applications continues to grow, even though the price of ETH has fallen since its last peak in June 2019. CryptoWolf, a Twitter analyst, believes that Ethereum’s price will follow the DeFi uptrend in a parabolic curve.

However, though DeFi applications grow fast, it is yet to be seen whether the blockchain will be able to accomodate transactions of wide audience.