A Detailed Walkthrough to DeFi for CEOs and VPs of Organizations

One such trend that is paving the way for businesses to look at their financial investments and transactions differently is the concept of decentralized finance (DeFi). Over the years, the DeFi market has grown to be one of the biggest with market size of more than $65 billion in 2021.

With that kind of valuation and increasing interest among corporate investors, it’s time for the top leadership to take note of this evolving technology. In some cases, to even invest in it to take their companies to that next level. Based on

How does DeFi work?

DeFi is a term that has been around for a while. For decades, it was used to refer to the process of enabling finance professionals to make autonomous decisions so that all of them don’t have to pass through a senior manager. This became a key requirement in organizations to expedite financial transactions, decisions, and related paperwork.

But DeFi now is a term used to describe a branch of cryptocurrency that didn’t even exist in the last decade. Defi is a blockchain-based financial branch that eliminates the need for intermediaries such as banks, brokerage firms and exchanges for important financial transactions.

Essentially, DeFi recreates the financial markets and exchanges facilitated in a decentralized manner for cryptocurrencies. This essentially means that people can enjoy a higher level of transparency in investments, trades, and transactions. The primary aim of DeFi is the disruption of current financial structures and systems to facilitate financial services and products in a more accessible and equitable way. This includes products and services such as loans, investments, and stock options.

DeFi can be explored using multiple applications that now offer a platform to access financial products and services using cryptocurrencies. The most prominent cryptocurrency used in DeFi transactions is Ethereum, so you may need to purchase a definite sum of it to proceed with transactions and investments.

What advantages does DeFi have for businesses?

DeFi offers a lot of advantages for individuals as well as senior personnel of businesses and enterprises. Some of the high-level benefits that the senior management of companies can get through by investing DeFi are as follows:

1. Better control over assets

In traditional financial systems, the regulatory bodies and financial entities have a strict hold on how business assets will be managed. Having such a powerful gatekeeper for your financial assets is all good until you have to encounter numerous challenges as a result of it. You may need to incur hefty charges and commissions in the process, and also experience lower latency in transactions.

More importantly, since all your assets and finances are regulated with the help of preset policies and laws, you’re likely to have little to no control over your assets. With DeFi, all of this gets simpler, as your investments that are also your precious assets will be completely under your control.

2. Increased security and transparency

For businesses to thrive today, offering increased security and transparency isn’t optional. Stakeholders demand these two parameters in transactions as well as in the core operations. Accomplishing this becomes so much easier with the help of DeFi.

As opposed to having a regulatory body to govern all the transactions, DeFi is completely decentralized, as it works primarily on the basis of smart contracts. These are digitally enforced contracts that cannot be tampered with and can be accessed by all parties involved. Any change in the contract can be traced by every party that is added to the contract, thus ensuring complete transparency.

Since DeFi is based on blockchain technology, it inherits all the security features that are associated with it. The smart contract code is stored on the blockchain and cannot be tampered with by an external party who does not have access to it. So, increased transparency along with improved security. Win-win.

3. Highly accessible financial products and services

One of the common challenges that businesses face is not getting access to the required financial services and products because of the conditions and paperwork associated with the process. For instance, securing a business loan requires companies to secure a lot of documents and to actively invest time.

With DeFi, you can access the digital version of the traditional financial services and products, much more easily. More importantly, the middleman gets eliminated from the process, so you can forget about paying commissions and hefty interest charges. With that in mind, we can understand that financial products and services become easily accessible.

Since you would be carrying out such transactions directly, it’s best to educate yourself about the common crypto trading mistakes and avoid them.

4. Early mover advantage

DeFi is still in its infancy in the world of business. While this might seem like a risk to many, this also gives you the opportunity to gain the early mover advantage. It’s the kind of advantage that Amazon has in the ecommerce industry. Being one of the first ecommerce companies, Amazon took a huge risk but over the years was rewarded for the same with a substantially larger customer base than any other ecommerce company in the world today.

DeFi and its salient features have already made it clear that it has a firm future in the financial world, even if not in the traditional finance realm. So, investors and companies that start leveraging DeFi right away, will have the advantage of being some of the earliest ones to do so.

This might seem like a trivial win in the short term, but in the long term, it could place you light years ahead of your competitors. If you wait a few more years to do so, there’s a good chance that you would just be jumping on the bandwagon — still beneficial but without the advantage of getting there early.

Final thoughts

DeFi is proving to be the new-age way of conducting financial transactions and availing of financial products and services. Backed by blockchain technology, DeFi is likely to offer you better security, transparency and user-friendliness than most financial systems. The best part is that you can bypass the need for middlemen completely, thus reducing the overall cost that you have to bear for financial transactions and services.