Decentralized Finance, commonly referred to as DeFi is the economic paradigm shift that is enabled by the Blockchain network and other decentralized technologies. These decentralized protocols build an open financial infrastructure that enables people globally to access censorship-resistant and self-sovereign financial services.
DeFi is one of the most active sectors in the Blockchain being that it affects a wide range of sectors from USD-pegged stable coins, to P2P payment systems to automated loans. It not only serves developers but individuals and institutions as well.
Understanding ETH 2.0
The first stage of Ethereum 2.0 is almost here and the big question is how will it affect the DeFi space? What will happen to the DeFi ecosystem as the Ethereum 2.0 update is rolled out?
Any crypto enthusiast will tell you that ETH has been a game-changer in the crypto sphere, this is due to factors such as the native token ETH, tokenization, and smart contracts. However, Ethereum has also faced a couple of challenges such as low transaction times and network congestion. The Ethereum developers have always tried to implement all the necessary measures to combat the challenges and issues that arise. ETH was created in several stages and ETH 2.0 is a particularly important stage for the community and the network. ETH 2.0 is expected to bring the biggest changes in the network such as sharding updates and proof-of-stake.
Decentralized Finance and Ethereum 2.0
DeFi has a prominent place in the Ethereum ecosystem. The total value of Ethereum locked in Defi Apps is over 2 Billion USD (as of writing), this number is expected to grow as more users warm up to DeFi. Scalability however remains to be a stumbling block for DeFi applications as compared with their traditional counterparts. The ETH 2.0 upgrade will allow scalability which could bring DeFi apps in line with traditional solutions.
The ETH 2.0 upgrade allows developers to make scalability gains with technological implementations that could bring DeFi apps in line with traditional solutions. Ethereum-based financial services, connect individuals peer-to-peer and allow them to access basic financing more easily and affordably.
Benefits of Decentralized Finance (DeFi)
- Programmability – use of highly programmable smart contracts
- Immutability – high security and auditability thanks to tamper-proof data coordination enabled by Blockchain
- Interoperability – DeFi protocols and applications are built to integrate and complement one another
- Efficiency – financial services are powered by code and not manpower hence eliminating intermediaries
- Transparency – Public Blockchains are completely transparent and auditable
- Permissionless – All you need is an internet connection to access DeFi services
- Censorship Resistance: No central party can reverse the order of transactions or turn off the service
DeFi opens the world for numerous applications which can replace the traditional financial services like Lending, Open Source Banking Applications, Asset exchange, Prediction markets, Credit Scoring, Smart securities, Insurance, Stable coins, Indexing, Derivatives to name a few
Whatever the price Ethereum may be in the future, 2.0 upgrade is very important for the DeFi ecosystem, but it needs to be done right to ensure it does not interfere with one of its major ecosystems