• DeFi is an umbrella term used to describe a new version of traditional financial services that don’t require a centralized third-party provider
  • Growing DeFi ecosystems can help users lower costs and conduct business faster

The last few years have seen perhaps the greatest evolution of crypto and blockchain tech since the initial coin offering craze of 2017/2018: the growth of decentralized finance (DeFi).

DeFi is an umbrella term used to describe a new version of traditional financial services that don’t require a centralized third-party provider.

Growing DeFi ecosystems can help users lower costs and conduct business faster. And the more related platforms grow, the greater the reach will be to those who lack access to the legacy financial system.

Diversifying DeFi use cases can be seen as an important next step in developing the ecosystem. Right now, staking and yield-farming are the primary components of decentralized finance. Gaining crypto-denominated passive income has become the bread-and-butter of DeFi.

But what about other use cases? The potentials seem almost infinite, even if many of them have yet to be developed.

Challenging times

There are a number of challenges involved in growing DeFi ecosystems. First, people need to know they exist and what the benefits are. Then comes the user experience, which isn’t always as user-friendly as traditional finance. And of course, the infrastructure must be developed, which is an ongoing process.  

There are more than a few horror stories about users who lost everything in one protocol or another, whether it be through a hack, a rug pull scheme, or an algorithmic stablecoin falling to zero.

These growing pains could be worth it in the long-term, though. A mature DeFi ecosystem can give near universal financial access to billions of people for a fraction of the cost at much greater speeds. And many users will have a greater chance to increase their financial well-being than they would have otherwise.

The use cases are too numerous to list, and some probably haven’t even been thought of yet. 

Here are just a few ways that the legacy financial system is being upended.  

Staking and Yield Farming

Who doesn’t want to earn more with their crypto? While proof-of-work coins require mining hardware to earn rewards, proof-of-stake coins reward those who lock up their tokens to validate transactions on the network.

But doing so can require a lot of capital and tech know-how. Fortunately, there are companies making things easier for users.

The Exodus platform makes up a large percentage of stakers on those chains, according to Sebastian Milla Goñi, chief of special projects at Exodus.

Solana, (SOL), Cosmos (ATOM), Tezos (XTZ), and Cardano (ADA) are among the most popular proof-of-stake tokens that people earn passive income from.

Dapp ecosystem projects

Synthetic assets open up the world of trading to anyone, without the need for a bank or brokerage account.

Instead of trading assets directly, users can trade synthetic assets on decentralized exchanges. Synthetic assets or “synths” are tokens that mimic the price action of a real-world asset.

Oracles like the ones provided by Chainlink power these synths, providing a constant stream of pricing data in a decentralized way.

Synths are only one of many potential dApp ecosystem projects.

Smart contracts

Thanks to smart contracts, DeFi users can have their money work for them in an automated fashion. Decentralized borrowing and lending gives equal access to all users, regardless of credit score or financial history. 

Sports betting apps

Practically any online activity that involves an exchange of value can be made “bigger, faster, and stronger,” in the words of Milla Goñi.

Exodus had launched the first accountless sports betting app before the project had to be put on hold due to high gas fees, according to Milla Goñi.

“We did have a sports betting app on ETH, we had to shut it down because of ETH gas fees, but we’re currently working on getting it back online. It was the first accountless sports betting app. You did not have to open an account to make a bet, which is really significant because you don’t have to put in an email or any information,” he said.

“I think that’s the main benefit that DeFi gives the customer and also the entrepreneur…I think that in the future the internet is going to be the first and only place that entrepreneurs are going to have to build their businesses,” added Milla Goñi.

Transformation of business models

Perhaps the most significant potential use cases for DeFi involve an integration of financial payment mechanisms with existing internet-based platforms.

“I think that there’s three concrete business models that we’re going to see migrate to crypto in the next five to ten years,” said Milla Goñi. Among these are: social media networks, video games and financial applications.

Why? The answer is simple, according to Milla Goñi.

“Already their experiences are 100% digital and 100% native. The only time they ask for something that isn’t native is when they’re asking for a credit card or a debit card, and it’s painful as hell for the end user,” he said.

Rather than having to grab a credit card and enter the information, people on financial apps, video games, or social media will be able to directly interact with a DeFi protocol inside of the app they’re already on. This would make things easier, faster and cheaper.

ZIRP: DeFi’s best friend?

In an era of zero-interest rate policy (ZIRP), the kind of yields that can be found in DeFi are unparalleled. This could be a factor that continues to draw capital away from traditional financial institutions.

In addition to attractive yields, Milla Goñi mentioned the lack of fees as another key reason that users will migrate toward DeFi services.

“Most people don’t understand how revolutionary DeFi is against the legacy financial system in terms of ACH payments, wire transfers, and credit and debit cards…settling on those systems is expensive,” he said. “If you accept credit cards as a small business or even a large business, you’re going to eat 1% to 3% in chargebacks a year, and that’s revenue that you’re just setting on fire…you burn that and then you pass that cost on to the customer.”

Milla Goñi added, “All of that risk, all of those fees that are baked into the legacy system, that all goes away in DeFi.”

Navigating the DeFi world can be cumbersome, confusing, and risky. Using a trusted wallet service like Exodus can expedite the process and make the learning curve easier for new users.

As Milla Goñi puts it, “Exodus is the easiest software to use to manage and buy cryptocurrency, on desktop and mobile.”

  • Brian is a freelance writer who has been covering the cryptocurrency space since 2017. His work has appeared in publications such as MSN Money, Blockchain.News, Robinhood Learn, SoFi Learn, Dash.org, and more. Brian also contributes to the Nicoya Research investment newsletters, analyzing tech stocks, cannabis stocks, and crypto.