Understanding the Nuances of Decentralized Finance and the Future Growth Opportunities for the Industry.

technologies for improving the efficiency of financial transactions. Decentralized finance makes use of emerging technologies to bypass third parties and financial intermediaries and lets the user access financial services directly. 

Working of decentralized finance and its uses

In today’s predominant financial setting, every individual can complete any of his/her financial transactions through centralized governmental channels only. Each country has its own apex financial institution which acts as a central agency to govern all the financial transactions. It is due to this structure that individuals seeking to complete financial transactions have to go through different middlemen such as banks and lenders. This increases the cost and time required for a transaction. Decentralized finance, by using emerging technologies and security protocols, negates the need for a centralized model.

The decentralized finance model allows a user to lend, borrow, and trade money and securities directly with the other individual. Since this model makes use of blockchain technology, each transaction by every user is recorded in a distributed ledger. Also, the financial transaction is considered to be completed and accepted only when a consensus among all members of the list is reached. However, unlike the case in cryptocurrency, the transactions made by users are not fully anonymous. The details of these transactions can be retrieved by central banks and governmental agencies if the need arises.

Future growth opportunities for the industry

The decentralized finance market, though a relatively nascent one, has managed to grow handsomely in the past few years. It is predicted to grow at a stunning CAGR of 43.4% during the 2023-2032 period. Increased investments and spending on development of blockchain technology is one of the vital growth drivers of the industry. Along with this, an overall surge in digitization of financial services will also help the market to strengthen its position in the next few years. 

One advantage of decentralized finance is that it helps in expanding the access of financial services to include those who were hitherto unbanked. Hence to achieve the goal of financial inclusion, many countries are slowly adopting decentralized finance models which has helped the market to increase its footprint in areas where its presence was negligible earlier. Apart from these factors, collaborations between leading companies in the industry will also prove to be beneficial for the market. For example, in December 2021, Concordium and Verum Capital AG announced a partnership which was aimed at launching Concordium DeFi Lab. This lab will focus primarily on developing decentralized finance products. 

The global decentralized finance industry, to conclude, is expected to propel ahead owing to a rise in investments in blockchain technology. The growing shift towards digital financial services will create growth opportunities in the market. Furthermore, product launches by leading companies will augment the growth rate of the market substantially in the coming period.

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