Blog | Cryptocurrency

The True Potential of DeFi

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Bitcoin was born out of a desire to break away from the conventional financial system. Within it held the hopes and dreams to engage in financial transactions without reliance on banks or governments.

The true purpose of the invention of cryptocurrency was freedom.

Over time, now Bitcoin has become adopted by several financial institutions and centralized exchanges. If you have read anything recently about or followed the rise of other digital currencies, then you may have heard the term “decentralized finance.” Decentralized finance, or “DeFi,” has the potential to provide financial services on a global scale without dependence on centralized institutions such as banks.

As with many aspects of the digital currency world, DeFi is still in its early stages of development. But it has the potential to transform financial services the same way that the internet has transformed communication services.

Through DeFi, ordinary people can directly manage, lend, borrow and earn money from their money at will. They don’t need a bank to facilitate these functions; they can do it themselves, on an open and transparent platform.

The true potential of DeFi is the potential for businesses funded and supported by the people, and people funded by supporting businesses. No banks or third parties are needed, and a synergized relationship between protocols and individuals develops.

Advantages of DeFi

The traditional financial industry requires that you apply for services, and opens your funds up to mismanagement as soon as you place a deposit. This industry lacks transparency in information or practices.

However in DeFi:

  1. You control your money, where it's held, and how you spend it.

  2. You can transfer your money in a matter of seconds or minutes depending on the network. (If a network is congested, your transfer will take longer to process)

  3. Anyone from anywhere in the world can use decentralized financial applications (DeFi).

  4. The market is open 24 hours a day, 7 days a week, 365 days a year.

  5. The DeFi ecosystem has transparent data that can be inspected, audited, and verified.

Comparing Earnings in a Bank Savings Account to Earnings with DeFi

Let’s create an example of two individuals, one utilizing a strategy with the bank and the other utilizing one in DeFi.

Gordon places $5,000 into a traditional high-yielding savings account with a traditional financial institution for 0.55% APY for one year.

Frank places his $5,000 into a yield-bearing DeFi stablecoin protocol that compounds daily for 19.48% APY for one year.

Neither one add any additional funds to the account for the twelve months.

At the end of the year, Gordon has $28 extra dollars in his savings account giving him a total of $5,028. By the end of the year, Frank has $6,076 in his account.

Risks in DeFi

Proper risk management is important when it comes to crypto. A non-custodial cryptocurrency wallet like MetaMask is a smart start when it comes to DeFi. A hardware wallet like Ledger, which looks like a USB stick, is a more secure alternative to regular crypto wallets.

Learning good safety practices, such as double-checking URLs to ensure against phishing, and not losing track of where your tokens are stored is vital to navigate the world of DeFi.

Education is King

Albert Einstein once said:

"Commit yourself to lifelong learning. The most valuable asset you'll ever have is your mind and what you put into it."

There is a whole new world out there. Learning about that world, and all of the potential it has in it, will help us unlock the potential within ourselves. Our financial growth and progression is our own to harness and cultivate. In crypto, there lies the chance to take control of our assets and decide how we want to use them.

Never stop learning, and both your mind and your financial health can only grow richer.

To Learn How to Harness the Power of DeFi

Subscribe to the Rich Dad Cryptocurrency Investment Membership and learn topics, strategies, and safety tips to help navigate the realm of cryptocurrencies and how to take advantage of all the opportunities within it.

Original publish date: April 08, 2022

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