Decentralized Finance DeFi has been one of the most rapidly growing trends in the Crypto ecosystem. And, this might be only the origin as the end goal of DeFi is to convert financial services completely.
For a better view of the adoption pace, consider this;
This TVL Total Value Locked in the Decentralized Finance protocols on the Ethereum Blockchain as collateral. It has surged from about $1 – $50 Billion in June 2020 to 2021.
DeFi or decentralized finance refers to a set of applications that use public blockchain technology as a decentralized infrastructure for internet-native economic services and products.
Lending, payments, borrowing, trading, asset management, and insurance are already on the menu of this thriving new sub-sector of the international crypto markets.
Decentralized Finance DeFi offers a wide range of Financial services by radically reducing overhead and allowing communities to manage the financial environment. Given the potential influence of DeFi on Traditional finance and the many significant possibilities, it shows that businesses can get exposure to this emerging area to benefit in several ways.
Stable coins play a significant role in Decentralized Finance, as they bring price resilience and act as a bridge between the blockchain world and the traditional financial system.
USD Coin has emerged as the foremost Decentralized Finance stablecoin, with more DeFi transactions taken out using USDC than any other stablecoin in the 1st quarter of 2021, based on data from Flipside Cryptocurrency. In this article, we gonna see about why do businesses need DeFi, what are the benefits presented in DeFi business? and more.,
Benefit #1: Attractive Yields
DeFi delivers a new potential source of profit for idle cash reserves. Record-low interest rates, quantitative easing, and incentive programs executed by Governments have made it difficult to find meaningful yield in the fixed-income markets.
Some businesses are already experimenting by investing in Bitcoin as part of their corporate treasury functions. However, DeFi is much more expansive and at times can offer engaging yield opportunities.
DeFi stablecoin capital markets routinely generate yields between 4% and 8% based on the need for stable digital assets. In particular, DeFi applications with the most elevated Total Value Locked (TVL) figures, typically in the tens of billions, exhibit a good mix of technical security, thoughtful protocol design, and ROI.
If businesses strive for greater integration and faster interactions with the emerging digital economy. They can rely on USDC, as the current OCC guidance allows stablecoins to be fully combined into corporate treasury functions.
USDC readily moved in and out of traditional financial accounts, as the OCC issued guidance that US banks may use dollar-backed stablecoins as a payment system, including stablecoins on public blockchains like USDC.
Benefit #2: Key to Alternative Lending & Borrowing
Businesses can smoothly access DeFi applications like borrowing and lending protocols to finance their business operations. Small and medium-sized firms (SMEs), which usually struggle to ensure bank loans, are first in line to aid from accessing capital in the DeFi markets.
DeFi is an enormous option for businesses in evolving markets such as India, Latin America, and Africa. Where SMEs often lack the proper banking infrastructure to fulfill their financing essentials.
With DeFi lending protocols, businesses all over the world can get access to decentralized financial services. While experiments with unsecured loans are endless, businesses should be prepared to lock up digital currencies as collateral on DeFi applications influenced by smart contracts. They can then receive funding against the collateral, to facilitate business growth.
Businesses sitting on idle cash can also convert their holdings to digital currencies and permit lending protocols to lend funds and gain interest. To mitigate volatility risks, businesses can lend stablecoins like USDC on DeFi platforms like Aave and Compound and generate attractive returns. This allows SMEs to hedge against the accelerating inflation as well as amplify their balance sheet.
Benefit #3: Early Embracement of Blockchain
Blockchain is one of the most rebellious and inventive technologies in decades, and it has the potential to remake financial markets as well as other industries. Embracing blockchain technology at this early stage will put businesses in a position to be one step ahead of the competition.
Blockchain technology can automate processes, remove unnecessary intermediates, and crop costs, secure a high degree of transparency and security, decrease human errors, and enhance user experience.
DeFi is a perfect way for businesses to partake in blockchains first-hand, as combining the technology for interior processes can be difficult and resource-intensive. As DeFi protocols and markets evolve, technology service providers like circle will make it simple for businesses to incorporate blockchain technology into their business operations and access the benefits of DeFi.
Getting a head start on DeFi, smart contracts, and blockchain technology is the most suitable way for businesses to prepare for the continued accelerated growth of the digital economy over the coming years.
In addition to decentralized access to alternative capital markets and the prospect to earn returns superior to other investments. It’s clear that businesses need DeFi now more than ever.
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