The decentralized finance industry has been growing at a breathtaking pace over the last couple of years, and it shows no sign of slowing down. According to a research paper published by the Federal Reserve, the wave of innovation appears to be unstoppable, as the blockchain has enabled fintech companies to reduce the costs of servicing customers, and to provide more and more services.
Ethereum’s nascent decentralized financial sector (DeFi) has the potential to become a truly open, transparent and immutable infrastructure that could lead to a paradigm shift in the financial sector, according to a paper published by the Federal Reserve Bank of St. Louis. Louis earlier this week.
DeFi is the collective term for a complex, interlocking network of decentralized applications (DApps) and platforms based on Ethereum smart contracts. The basic idea of the ecosystem is to create a financial system in which users can borrow, borrow and bank themselves without needing intermediaries such as banks.
Wave of innovation
In the document Decentralised funding : Through Blockchain-based Financial Markets and Smart Contracts, written by Fabian Scheer, a professor at the University of Basel, DeFi has set off a wave of innovation in recent years. Sweetly written:
DeFi offers exciting opportunities and has the potential to create a truly open, transparent and immutable financial infrastructure. Because the DeFi consists of a large number of highly interoperable protocols and applications, anyone can verify all transactions, and the data is readily available for analysis by users and researchers.
At the same time, he noted that this reliance on independent users is also DeFi’s Achilles’ heel, as the security of many dapps leaves much to be desired. As mentioned, hacks and money loss are commonplace at DeFi because the site is literally open to anyone, including highly skilled hackers.
DeFi Hacks galore
Just a month ago, for example, DeFi’s ForceDAO project was hacked just hours after launch, allowing attackers to steal nearly $400,000 worth of tokens. Recently, DeFi’s Uranium Finance project, which is based on Binance’s Smart Chain, lost $50 million due to an exploit – because the developers couldn’t even copy and paste code from other projects correctly.
Nevertheless: If DeFi can overcome security and risk issues, the sector has great potential to reinvent the financial industry, Sher says.
If these issues can be resolved, the DeFi could lead to a paradigm shift in the financial sector and potentially contribute to a more robust, open and transparent financial infrastructure, he concluded: Atomic swaps, autonomous liquidity pools, decentralized stackablecoins, and flash credits are just a few of the many examples that demonstrate the enormous potential of this ecosystem.
Meanwhile,Fi continues its exponential growth and shows no signs of slowing down.
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