DeFi use cases

The crypto projects that collectively make up Decentralized Finance (DeFi) have unlocked financial products and services that were out of reach to all but a small subset of the world’s population. Now they’re available to anyone in the world with access to the internet. DeFi replacements for legacy financial products and services will become so competitive that they will eventually rival the popularity of their legacy counterparts. Let’s take a look at four likely use cases.

Indice de Contenidos

  1. Asset Management
  2. DEX
  3. Borrow and Lending
  4. Stablecoins
  5. Conclusion

Asset Management

Asset management means you can hold your own assets. You can be your own bank. While this is technically possible in legacy finance, you can keep your fiat money and precious metals under your bed or in a safe, in practical terms you cannot. First, it’s not very safe. Second, you lose access to most financial services and products such as electronic payments, stock trading, and borrowing and lending.

This is not true in crypto. You can retain full control of your assets without giving up any of the conveniences or financial services and products. Self-custodial wallets like the Bitcoin.com Wallet make it easy and safe. You aren’t forced to self custody your cryptoassets if you don’t want to, but the fact that there is always the option means that intermediaries won’t have the unfair gatekeeping advantage that they enjoy in legacy markets.

Read more: What is a crypto wallet?

DEX

Decentralized exchanges, or DEXs, are decentralized versions of centralized exchanges (CEXs). Exchanges are a fundamental product for any financial market. They offer a way for buyers and sellers to come together and form a market to trade between assets.

In many ways CEXs are perfect examples of the problem of intermediaries. They’re powerful gatekeepers, deciding which assets can be traded, when they can be traded, and who can trade. This gives them incredible power to influence outcomes for assets, buyers, and sellers. In traditional markets, CEXs are not a single intermediary, but rather composed of up to five or more intermediaries (mobile app, PFOF, stock clearing, dollar clearing, dark pool, exchange, etc…). Each intermediary extracts value from the buyer and seller.

Payment for order flow (PFOF) As you can see, PFOF consists of a complicated web of intermediaries on both sides of any transaction, all of whom must be compensated.

DEXs can winnow down the number of intermediaries to one – the DEX itself. Importantly, the DEX is an impartial intermediary; a program defined by smart contracts visible to all on the blockchain. DEXs allow anyone to make a market — tradeable anytime, by anyone anywhere in the world. This radical leveling of the playing field strips away many of the entrenched advantages CEX-insiders enjoy.

Currently DEXs are used almost exclusively to trade between digital native assets like Bitcoin (via Wrapped Bitcoin) or Ethereum, but as the world becomes increasingly tokenized, DEXs will be able to facilitate the trade between almost anything – stocks, real estate, commodities, and more.

Read more: What is a DEX?

Borrow and Lending

Peer-to-peer borrow and lending DeFi products are some of the most popular DeFi products because they produce far better rates of return, and more streamlined lending terms than their anemic legacy market counterparts. For example, banks regularly advertise “high yield” savings accounts with an APY of less than 1%. The efficiency of these new products is great enough that there are already some centralized companies beginning to use DeFi products behind the scenes. Expect this to increase over time.

Businesses will outsource more and more of the actual financial machinery to more efficient DeFi products. Consumers who want full control of their financial assets, or who wish to fully capture the value of their assets will interact directly with DeFi products. Consumers who can’t be bothered, will rely on retail-friendly custodial companies. Yes, these are intermediaries, but the key difference is that the barrier to becoming an intermediary will be very low, and the constant presence of a zero fee alternative will keep intermediaries from extracting exorbitant amounts of value, less their customer base decides to take their business elsewhere.

Read more: What is APY?

Stablecoins

Stablecoins aren’t an exclusive use case of DeFi, but the two have been highly synergistic. Stablecoins make DeFi more usable, and in turn DeFi increases the volume of use of stablecoins. Stablecoins are a kind of tokenized version of fiat currency. Most stablecoins are tokenized digital dollars. Stablecoins have become the most popular trading pair for cryptoassets because they give people price stability in crypto, which is a very volatile new asset class. On DEXs or lending and borrowing protocols, stablecoins are the most used cryptoasset.

In parts of the world, stablecoins are starting to be used for everyday commerce. For example, in Southeast Asia, USDT is used for P2P payments and is even accepted at 7-Eleven in some areas. Stablecoins are being used for cross-border payments, especially in countries starved for US dollars; an understandable development since US dollars account for approximately 70% of world trade.

Investors and businesses are not the only ones who have realized the value of stablecoins. Governments around the world have implicitly recognized the fundamental use case of stablecoins by en masse committing to Central Bank Digital Currencies (CDBC), which are essentially nation-state backed stablecoins.

Read more: What are stablecoins?

Conclusion

DeFi has only begun to touch the surface of what’s possible. In the coming years, new DeFi use cases will emerge that were not possible in the legacy system.

Ready to start your DeFi journey? Get the multichain Bitcoin.com Wallet where you can connect to Ethereum DApps via WalletConnect. Or head over to Bitcoin.com’s Verse DEX, where you can trade permissionlessly, earn a share of fees, and more.

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