Decentralized finance (DeFi) is an industry that offers investors a number of benefits. From permissionless access to full blockchain transparency, these systems offer users a new way of trading, buying, selling and exchanging.
With a total of $40 billion (as of February 2021) locked in various protocols, DeFi’s popularity has become incredibly visible over the past few months.
DeFi has grown from a small financial system to a global movement, now reaching every corner of our world. However, there are some obvious limitations of DeFi. Being a decentralized system, it cannot interact with centralized assets, meaning stock options, commodities and indices were off the table.
DeFiChain, a blockchain system, will change that with the introduction of decentralized assets that will bridge the gap. In this article, we will examine the landscape of DeFi and show how recent DeFiChain developments will innovate the industry as a whole and drive DeFi’s user experience.
How has the DeFi landscape changed?
Decentralized finance began with the creation of Bitcoin, with the creator’s intention that it be a digital currency that can be used without having to rely on central intermediaries. What began as a rejection of centralized banking and governance has grown into an incredibly rich and expansive ecosystem.
In addition to Bitcoin, there are currently over 18,000 cryptocurrencies (as of July 2022). The second largest cryptocurrency is Ethereum with a total market cap of over $140 billion, which is 15.3% of the total crypto market cap. One of the main reasons Ethereum has become so popular is the ease of building decentralized applications on top of this system.
Ethereum has a fantastic level of documentation, comprehensive unit testing frameworks, debuggers, essential developer tools, and a range of tutorials and other learning materials. Quite simply, it has absolutely everything a developer would need to build a decentralized application.
The dApp industry has grown steadily in recent years, spanning finance, healthcare, education, and even real estate inventions. The versatility of the system and the benefits of blockchain adoption across multiple industries have made creating dApps a useful way to expand the utility of this ecosystem.
DeFi has become all-encompassing, spanning multiple industries and snaking onto the world stage. But while decentralized finance has a number of benefits, there are also areas where it falls short. One of these main obstacles is the fact that as a decentralized system, there is currently no way to allow investors to trade stocks on its platforms.
This is because stocks are a centralized entity, making them incompatible with DeFi. While this was a problem that seemed insurmountable, the arrival of decentralized assets on the DeFiChain blockchain will change the industry forever.
Let’s take a look at how DeFiChain is fighting this problem for DeFi.
How DeFiChain’s decentralized assets are increasing the utility of DeFi
While investors in DeFi can invest money in their favorite cryptocurrencies and dApps, they have always failed to access actual stocks. However, with the development of DeFiChain decentralized assets, this will change.
A decentralized asset, also known as dAsset or dToken, is a token on the DeFiChain blockchain that gives you price risk (not ownership) of real stocks. For TSLA, APPL, FB stocks, there are dTSLA, dAPPL, dFB, each trying to mirror the real stock price. Anyone can mint new dTokens by depositing BTC, DFI, USDT, USDC or DUSD as collateral in the DeFiChain vault.
These creations essentially mean that DeFiChain users can buy a decentralized asset that aims to mirror the real-world asset and provide 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 can mint tokens, with interest rates based on the amount of collateral provided. These dAssets can then be traded on decentralized exchanges, so that users can trade their dToken like real shares. People who couldn’t buy US stocks due to geographic or other restrictions 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.
On the way to passive income
A key aspect that is rarely achieved in centralized systems is passive income. While there are some elements of stock trading that could be considered passive income streams, like dividend payments, they typically only account for around 5%, which is far less than it takes to generate meaningful returns.
DeFi has a solution for this, which can be found in any proof-of-stake system. Typically, users can put their proof-of-stake cryptocurrencies in a liquidity pool. These liquidity pools allow Proof-of-Stake coins to validate transactions faster, allowing for scalability and fast transaction processing.
The development of POS cryptocurrencies has solved the central problem affecting Ethereum, which has notoriously high “gas fees” for completing transactions. Since this network can only process about 30 transactions per second and there is a potential demand for over 100,000 transactions per second, there is a huge processing queue on this blockchain.
To push transactions to the front of the queue and ensure they are safely recorded in the next block, Ethereum asks users to pay a gas fee. This has made development within dApplications costly as users who want instant transactions 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 per second, meaning there’s never really a queue to process your transaction, there’s almost no gas fee. This is achieved by creating large pools of liquidity, using these pools filled with users’ cryptocurrency to validate transactions quickly.
In exchange for putting their POS crypto into these liquidity pools, users receive a reward in the form of passive income. Over time, you will be rewarded with interest in the cryptocurrency you invest. Entire industries have sprung from this “staking” model, with people attempting to maximize their yields in a practice known as yield farming.
People using crypto can expect a 10% to 100% annual return on their investment, making this an incredible opportunity for DeFi users.
How DeFiChain is taking this further
DeFiChain builds on typical staking protocols and offers even more benefits to its investors. While a traditional investor doesn’t make money after buying a stock until they sell it for a profit, DeFiChain is changing the game. Once a user buys one of their dToken assets, they can put it into a liquidity mining pool.
Not only do they make a profit from the appreciation of their dToken, but they can also generate passive income by placing their dAssets in these liquidity pools. This dual income strategy takes the phenomenal returns within DeFi systems and brings it to dAssets.
With this integration, DeFiChain is essentially innovating the DeFi space and offering a whole new way to make money when it comes to decentralized ecosystems.
Final Thoughts
With the launch of dAssets, DeFiChain has created a new investment path for DeFi that is radically changing the possibilities within these ecosystems. Considering that these dTokens can then be entered into liquidity mining pools for additional rewards, this system also creates a new way to earn passive income.
The advantages of DeFiChain for investors are impressive, creating new systems and then pushing this system as far as possible for the benefit of users. With future plans to bring the actual share price and dAsset price closer than ever through their DeFiChain Improvement Proposal (DFIP), this system will be incredibly beneficial to users.
Although DeFiChain is still a fledgling blockchain, with innovative features, exciting updates and vision for the future, it is emerging as an industry-changing blockchain ecosystem.
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