Decentralized finance based on Ethereum could be the future of savings if banks continue to slash rates, punishing savers. There are more ways to make profits with cryptocurrencies than simply speculating on their prices and DeFi is emerging as a game changer for the future of finance.
Ethereum For Bank Beating Finance
Every week another bank around the world cuts its rates and many have now gone into negative territory. These efforts are taken to encourage spending and borrowing and discourage saving and earning interest as economies around the globe cool off and head for recession.
DeFi, or decentralized finance, is a way to lock up crypto assets securely via a smart contract and earn interest on them through lending platforms. According to defipulse.com over $650 million has been locked up and the figure is rising.
Since the beginning of the year the amount staked on DeFi platforms has doubled and that trend is expected to continue as the world’s economies contract and banks continue to punish their clients.
MakerDAO is the leading platform with a dominance of around 53% at the moment. According to a Defiant report borrowers are increasingly pulling Ethereum from other platforms and using it as collateral on MakerDAO instead.
Borrowing rates are also falling as MakerDAO beats other DeFi platfroms such as Compound Finance and dYdX. A further consequence of cheaper borrowing costs is that Dai supply is now at a record high of 100 million.
CDP #15336 executed a draw:
️️?️ 609,000 DAI minted
? Liquidation price: $81.70/ETH
? CDP debt: 8,519,000 DAI ?
? Total DAI Supply: 100M DAI
More info: https://t.co/uVuYV0bgdT
— Maker DAI Bot (@MakerDaiBot) November 6, 2019
Borrowing and lending rates should continue to decline as DeFi grows as they are a result of increasing liquidity. The report added that this year the big selling point of DeFi has been the ability to earn double-digit interest on a dollar-linked assets anywhere in the world.
“That’s compelling to both developed-world users with near-zero returns on their savings accounts, and developing-world users with devaluing currencies and restricted access to dollars.”
DeFi rates are likely to remain higher than traditional finance for the foreseeable future due to the riskier nature of the investments. DeFi is also streets ahead of the banking system which today requires a ridiculous amount of personal and financial information from its clients, which verges on a violation of privacy.
To become the future of finance DeFi has to beat the banks and it is already doing so on returns and ease of use. With the users having custody of their own funds which are secured by smart contracts, banks appear pretty much redundant in comparison.
With the already well-established Ethereum as the primary platform there is a solid ground for a future free from centralized banks which have proved time and time again that they cannot be trusted.
As negative interest looms and fiat currencies are massively devalued, the financial system needs a revolutionary shake up for both savers and borrowers. Cutting out the middle man is what crypto is all about and DeFi does just that.
Image from Shutterstock