Decentralized Finance (DeFi) is one of the hottest topics in Web3 discussions. DeFi isn’t new — it’s really one of the primary forces in cryptocurrency adoption. We’ve written an overview of Web3 that included it, but it’s a big enough topic of its own to warrant a deeper dive. In particular, we feel the need to outline Dash DeFi use cases that could fuel growing adoption of Dash as a blockchain development platform.
What Is DeFi?
Simply stated, DeFi includes financial applications that leverage blockchain networks and technologies. By definition, blockchains are decentralized, putting the De in DeFi. It operates on a global basis, facilitates peer-to-peer transactions, protects identities, and is available to all network participants.
Why Is DeFi Important?
Web3 represents an important evolutionary stage for the internet. Web1 got us started, then web2 showed us the tradeoffs of centralizing control. DeFi’s role is to take financial control back from the corporate grip of web2.
Customers Are in Control
Trust in financial institutions continues to erode. Whether it’s unscrupulous sales processes like Wells Fargo carried out, the need for government bailouts by speculative banks, or the painful security breaches like Equifax, customers have good reasons to want a better way to manage their financial data. Security, privacy, and risk are all viable DeFi principles.
No Need to Depend on Banks
Digging further into control, banking has a stranglehold on what customers can do. Central banks manipulate fiat currencies, which drives financial institutions to find ‘innovative’ ways to maintain profits. Remember mortgage-backed securities and collateralized debt obligations (CDOs)? Banks enabled all those tools that brought global economies to the brink.
“The way we’ve always done it” somewhat limits our financial lives. But DeFi opens new windows into what’s possible. Just as the birth of the web changed finance already (e.g., PayPal, crowdfunding), we’ll see new models arise with blockchain under the hood.
We also have a large population of unbanked people who could use blockchain DeFi solutions to circumvent their problems. DeFi solutions can provide access to financial products & services for those who cannot access centralized finance. For example, people with poor credit, missing documentation, or residing in areas lacking banking could be served.
Dash DeFi Potential Use Cases
DeFi covers a wide swath of financial dApps…
Web3 decentralized identity solutions give users direct control over personal data. Instead of unwittingly giving it away to third parties as we all did in web2, DeFi enables managing IDs (e.g., government IDs, tax forms) in a digital wallet.
Decentralized Autonomous Organizations (DAOs)
Decentralized Autonomous Organizations (DAOs) oversee allocation of resources in their associated projects in order to drive long term success. DAO rights and responsibilities work like those of a typical corporation via smart contracts, with members voting to set the rules of the protocol.
Obviously cryptocurrencies enable a global payment system with thousands of options. Fiat currencies get anyone in the game, then anyone can exchange tokens with others on the network.
Peer-to-peer loans are a part of the DeFi promise too. Without the overhead of banks, individuals and businesses can use dApps to loan or borrow money. Smart contracts store payment terms on the blockchain, providing both transparency (of identities) and visibility (of the agreement).
DeFi insurance won’t be sponsoring any college football bowls or advertising during basketball season, but individuals and businesses can use pooled insurance services that protect against life’s challenges. Basically people can share risk (e.g., loss, damage, illness, or death) without the need for an insurance company.
Decentralized Exchanges (DEX)
Decentralized Exchanges (DEX) are peer-to-peer marketplaces where cryptocurrency holders can transact without an intermediary or custodian. Smart contracts (there they are again!) facilitate transactions. Each trade incurs a transaction fee and a trading fee. Users maintain control of their wallet’s private keys.
Staking has emerged as a fundamental way to earn a return from crypto assets. In DeFi staking, users lock tokens in a smart contract as a way to earn more tokens as a return. Often staking provides validation in a Proof of Stake (PoS) blockchain network like Dash.
Web3 Use Cases: Dash and DeFi
The Dash community has seen early versions of these DeFi concepts already. But we’ve only scratched the surface of what DeFi can do. An early feature to be included in the next major release of Dash is identity management. Just that one feature opens new Web3 doors, while reducing the complexity of Dash crypto and enabling a better user experience. Thanks to the masternode infrastructure, Dash is known for efficient payments. Staking is forming Dash roots today, so we should see other DeFi dApps sprouting soon. Dash and DeFi should be a powerful duo, making Dash a strong contender in Web3 development.