The crypto market is red-hot, and new investors keep piling in.
Bitcoin has risen 763% over the past year and has developed a reputation as a must-own cryptocurrency.
But the future of crypto is much bigger than bitcoin. Decentralized finance (DeFi) is the next stage in the crypto market evolution.
An Alternative to Every Financial Service
DeFi is a blockchain-based form of finance that offers financial products without reliance on central financial intermediaries such as brokerages, exchanges or banks.
Using smart contracts, DeFi can provide an alternative to every financial service and completely disrupt the traditional finance industry.
DeFi is already taking off. The total assets staked in DeFi protocols has risen 6,440% over the past year, from $631 million to $41.2 billion.
(Source: DeFi Pulse.)
Investors and traditional finance firms are aware of the potential for disruption.
Last week, Bank of America said DeFi could be “potentially more disruptive than bitcoin.”
DeFi Lending Products
Trading, lending and insurance are just a few of the financial services that DeFi stands to disrupt.
DeFi lending products may be the most interesting. The current lending industry is inefficient and has flaws that prevent people from accessing credit, even in the United States.
According to Bankrate, during the pandemic 21% of U.S. consumers had applications for credit rejected due to a low credit score. Millennials have been hit the hardest, with 32% denied credit.
DeFi opens lending to consumers with low credit scores since it is anonymous. However, the anonymity means crypto lending has been heavily reliant on asset collateralization ratios.
In an effort to reduce collateralization ratios and offer better lending terms, several platforms are now using crypto credit scoring that relies on blockchain transaction history to determine willingness to pay.
In addition to solving the credit score problem, DeFi lending can greatly reduce the time taken to obtain a loan.
On average it takes three to four weeks to be approved for a credit card and receive the card via mail. For mortgages the average time to close is 42 days, according to Ellie Mae.
By using smart contracts, DeFi lending offers a much quicker and more streamlined process.
The Upside Is Massive
It is easy to see why both investors and institutions see value in DeFi.
DeFi is quickly taking share of the $23 trillion financial services industry, and the upside is massive.
This is why crypto expert Ian King pounded the table about DeFi, and subscribers of his Next Wave Crypto Fortunes service have pocketed huge gains.
The death of traditional finance is still in the early innings, and investors that buy the right cryptos have the potential to see more gains in the years to come.
Research Analyst, Automatic Fortunes