Defi is a great example of the functionality of blockchain assets and decentralized protocols.
What distinct advantages does Defi offer over more traditional centralized financial processes? Fees can be high on Defi platforms, and trust has been shaken as large companies such as Blockfi that offered these services crashed due to mismanagement.
Could we see mortgages, personal and business loans on decentralized protocols? How can users and investors build Rock solid trust in Defi platforms to take the place of existing services in the financial industry?
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For one, DeFi promotes financial inclusivity, since anyone with an internet connection and a digital wallet can access DeFi services. This removes barriers related to geography, socio-economic status, and other factors that can limit access to traditional financial services. Additionally, is often praised for its transparency and resistance to censorship, as it leverages the openness and immutability of blockchain technology.
However, the high fees and past failures in the space do pose challenges. Regarding mortgages and personal/business loans, there's potential for these to exist on DeFi protocols. We're already seeing examples of peer-to-peer lending and borrowing platforms in DeFi. However, they'd need to overcome challenges around enforceability and physical asset collateralization to gain mainstream acceptance.
Trust in DeFi platforms can be built through several routes. Firstly, auditable and open-source code is crucial, so that users can independently verify the functionality of the platform. Secondly, insurance solutions, offer coverage against smart contract failures and hacks. Finally, community governance models, where users have a say in the direction of the platform, can help foster trust by aligning incentives. It's a combination of these measures, along with robust regulatory frameworks, that can help DeFi platforms build the confidence necessary to rival traditional financial services.