The already existing global financial system has led to numerous inequalities, thus raising the question of how we can make wealth-building tools more accessible to the rest of the global population. The rapid acceptance of evolving technologies has made the development of a new alternative to the existing financial system possible. This alternative is a decentralized financial system. In this article, we are going to tackle how it can help users protect their wealth and assets even in countries with poor governance and authorities.

The innovative decentralized financial system is being built on public blockchains for multiple reasons. Blockchains such as Bitcoin and Ethereum are open-source networks capable of decentralizing economic activity. One of the main reasons why blockchains seem like a suitable solution for the new financial system is because they are permissionless, meaning anyone in the world can connect to them. This can solve the inequality issues posed by the traditional financial system.

Moreover, a public blockchain is decentralized, which means its records are kept across thousands of devices rather than one centralized server. The blockchain is completely trustless, meaning there is no central party responsible for validating the transactions or capable of shutting down the network. All transactions on a public blockchain are completely transparent and publicly auditable.

The current financial system has placed several barriers that prevent people from accessing specific services. These barriers include location, wealth, and status. However, with a decentralized financial system, people would be able to access all financial services regardless of their location or documentation status, and without any required entry fees. 

Moreover, a decentralized financial system would allow for more affordable cross-border payments. The current system has a remittance fee of 7% for cross-border payments, thus taking away a significant portion of people’s finances. 

A decentralized financial system would lower the remittance fees significantly, making this service more affordable for everyone. The new financial system could also lead to security improvements, as there would be no custodial institution involved in handling people’s transactions. 

The fact that a decentralized financial system removes all intermediaries and makes transactions immutable is a real game-changer in the world of global finance. This solution would allow people to use financial services through mobile applications without the complexity of the centralized system. 

The co-founder and CEO of Band Protocol, Soravis Srinawakoon shared his thoughts about the topic in a recent blog post where he said:

“We believe decentralized finance has the potential to create a new financial system that is truly global, open, and transparent. What we have seen so far, mostly over-collateralized loans is barely scratching the surface. Over-collateralized loans are quite small in traditional finance, and we think the bigger pies. This will be truly game-changing.”

Band Protocol is a data governance framework and a part of the DeFi network. Decentralized Finance or DeFi is a movement that aims to transform financial products with the use of decentralized networks. 

DeFi aims to create trustless and transparent financial protocols and remove intermediaries from the system. DeFi Prime network unites a variety of projects that aim to bring more decentralization to the masses, including MakerDAO, Compound, OX Protocol, Nexus Mutual, VouchForMe, Connext, and Celer Network. 

A DAO or Decentralized Autonomous Organization is an organization controlled only by shareholders, without any hierarchical management. is one of those organizations that allows businesses and individuals to utilize digital money without volatility. Its aim is to make financial services available for everyone, as well as provide fair credit for all users regardless of their status. MakerDAO is shaped by community governance and based off a decentralized stablecoin.

The team behind Band Protocol saw the emerging need for oracles in the crypto space. They created a protocol that offers decentralized data oracles and connects off-chain real-world data to smart contracts and decentralized applications. 

Is a DeFi project built for developers. As an open-source autonomous protocol on the Ethereum blockchain, Compound offers a variety of financial applications in an open financial system.  It provides the benefits of interest and borrowing as well as a community-built interface. The protocol aggregates the supply of each user, turning their assets into fungible resources. This allows for more liquidity compared to direct lending. 

Serves to enable peer-to-peer exchange of assets on the Ethereum blockchain. As a free open-source infrastructure, the protocol allows developers to enable the purchasing and trading of crypto tokens through their newly built products. The protocol can serve a wide variety of markets and it has already been utilized for over 30 projects, including Ledgerdex, Starbitex, and OpenRelay. The protocol has currently been used for over 713k transactions.

Serves as an alternative solution to insurance that covers the users in case of smart contract failure. This solution reduces the risk involved in dealing with smart contracts by protecting the users from the outcome of potential bugs in the code. Nexus Mutual uses Ethereum to share the potential risk among thousands of people, thus removing the need for involving an insurance company.

Is a tool based on blockchain that allows users to request friends and family to vouch for them. By getting friends or family to vouch for them, users can significantly lower the costs of insurance. As an online social proof platform, VouchForMe helps users collect guarantees that will show the insurance company that they are a low-risk individual. In case of an insurance claim, the deductible is split amongst those who vouched for you up to the amount they vouched for. 

Is a scalable Ethereum solution that allows users to batch multiple Ethereum transactions into one transfer. This is done by using off-blockchain commitments instead of direct transactions. Developers can use Connext to build wallets that offer instant Ethereum transactions at a low cost. Connext is backed by the Ethereum Foundation, Hashed, Kenetic Capital, and many others.

Is an advanced scaling platform that brings low cost and secure applications to any blockchain. The platform aims to enable fast off-chain transactions while maintaining the desirable level of security. Besides focusing on payment transactions, Celer Network aims to bring secure off-chain transactions for generalized off-chain smart contracts. The primary aim of the network is to help developers quickly build scalable decentralized applications.

The core mission of DeFi is making financial services available to everyone on a global scale. The shift from the traditional centralized financial system to a decentralized one would bring upon a new era of equality in the financial world. Besides making financial services available to anyone regardless of location, status, and wealth, a decentralized system would completely remove intermediaries from financial transactions.

Image(s): Shutterstock.com

The post Why We Have to Decentralize the Financial System appeared first on NullTX.

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