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How decentralization expands financial possibilities

Finance is an indispensable cause for mankind. Since the Neolithic Revolution allowed people to focus on personal handicrafts and trade, currency has been a medium of exchange, ensuring that a person whose duty is to make a certain commodity can obtain all the other things needed for life. Finance is essentially no good or bad; like fire or electricity, it is just a tool that humans use to build the modern world.

Just like other tools that have been developed and utilized, finance is fluid, not static. It is particularly affected by technological changes. For example, in most premodern societies, wealth is based on tangible land and the resources it produces. Only in Italy during the Renaissance did currency become the core of the world economy-this change promoted the transformation of double-entry bookkeeping and joint-stock companies, laying the foundation for today’s modern world.

Today, we are on the threshold of another financial revolution, driven by a powerful word: decentralization.

Decentralization is expected to open up almost limitless new possibilities for the way people access and use the financial system. It promises a new paradigm—decentralized finance or DeFi—that can expand access to basic functions such as banking and credit, while reducing inefficiency and improving security. Using the potential power of blockchain, it has the potential to improve the efficiency, reliability and accessibility of finance for people all over the world.

Expand financing channels

One of the biggest pain points in the traditional economy is in the area of ​​loans. Even in developed countries, many people lack or are actively denied access to credit. Although this may not be the primary consideration for many people, it is an essential financial need; for example, almost no one in the world has the capital to buy a house directly. The way people become homeowners and accumulate wealth through equity is to borrow money in advance. But many people are denied this basic opportunity; according to the World Bank, Nearly one third The world’s population currently lacks financing channels.

The traditional centralized financial system in the world is the driving factor for this inequality. Opaque gatekeepers such as credit rating agencies will determine the “value” of a person’s borrowing money and reject those without existing relationships or written records. The result is that those with wealth can get more money, get more opportunities and further increase the value of their assets, while those who are locked up are still trapped in place.

Photo: PETRAS MALUKAS/AFP/Getty Images

The ability to save money is another core economic function, and many people around the world are rejected by it.Those who do have access to savings accounts are forced to accept deposit rates that are lower than inflation – even if the money makes possible loans generated by banks Billions of dollars In terms of income.

Now, decentralization is changing this paradigm. The network built using smart contracts is maintained, expanded and managed by a huge network of decentralized “nodes”: a separate computer collectively verifies and records each transaction unchanged. This consensus governance not only eliminates the need for gatekeepers, but also promotes a more transparent and efficient system with no single point of control or failure.

Suddenly, anyone with a computer—no matter where they live—can save money. Since the network is decentralized, there is no gatekeeper to determine who is allowed to deposit, borrow, or lend assets. Because they are digital and accessible via desktop or mobile devices, they can be used even if people live in places without traditional financial infrastructure.

In addition, decentralized financial services can surpass the near-zero interest rates currently provided by banks around the world. This is because of the unique architecture that underpins many decentralized networks: people “mortgage” assets and get rewards for performing various roles. These mortgage rewards may be many times higher than traditional savings interest. In fact, new asset classes have begun to emerge, providing pledge services and sharing these benefits with more and more people.

Nonetheless, a key challenge for decentralized financial markets will be accessibility: to truly prosper, people must be able to use these systems at the lowest cost, trouble, and risk. Although crypto projects including DeFi platforms are still in the early stages of development and user experience, the development team is already working hard to make these networks as simple and intuitive as traditional banks and lenders.

The traditional financial system is controlled and operated by centralized gatekeepers, which is inefficient and denies access to many people from all over the world. This is unfair on the surface, and it is also a huge economic loss to the global economy. Now, we have an alternative. It is time to focus on the decentralized blockchain to transcend these limitations and enter a new, decentralized financial world that provides more opportunities, more opportunities and fewer barriers to entry.

(Dean Dai is the co-founder of DODO, a decentralized crypto asset exchange)

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