If anyone was in doubt about society’s ineffective and esoteric financial systems, the COVID-19 pandemic has hopefully highlighted these issues for them. It’s one thing to recognize ineffectiveness, though, and another to seek a solution. 

Could blockchain and crypto present an answer? Decentralized finance, or DeFi for short, has the potential to revolutionize finance and make payments accessible to anyone with an internet connection. 

DeFi’s UX has historically been exclusionary, built by and for blockchain enthusiasts — not exactly applicable for the general public. However, DeFi has made significant strides in recent months. Despite a decrease in crypto-related investments in April, 2020, thanks to the pandemic, decentralized lending did witness a 50 percent increase over the same period. 

Likewise, a DeFi app named Dai hit an all-time high in April. Dai is a digital token that aims to work beyond the reach of central banks. It is also backed by the U.S. dollar, making it far less volatile than bitcoin and, therefore, more practical for everyday use. 

Though once mysterious to laypeople, DeFi is closing the gap between consumers and blockchain. 

What’s Wrong With the Current System? 

Let’s address some of the problems with current financial systems around the world. 

First, they’re inaccessible to most people. Convoluted laws, red-tape, and questionable fiscal policies that no one except highly trained experts can understand create a landscape that is far too difficult for almost everyone to navigate. 

Transactions become complicated, expensive (it’s contradictory that you would have to pay money… to pay money), and time-consuming, especially essential purchases that require third-party facilitation. Everyone pays taxes, but countless people need to hire accountants to pay what they owe, not more or less. 

Plus, these same issues result in an environment where it’s far too easy for predatory companies to take advantage of everyday citizens. Discrimination is rampant in finance, too: the U.S. economy was built on the exploitation of people of Color, and banks frequently force higher interest rates and stricter terms on people of color even if they are more financial qualified than White people (if not outright deny them loans or credit). 

Banks, governments, and other institutions sound like vague entities that are difficult to grasp, but they are very concrete organizations that are, ultimately, composed of individual people. These people are human, and thus are prone to human error. Consider Venezuela, where poor government policies (along with a drop in oil prices) are responsible for an inflation rate of over 1,000,000 percent. 

Financial institutions aren’t global, either. International transactions are overly complicated and make exchanging between countries and currencies difficult. 

Cryptocurrency, however, compensates for many of these disadvantages. While certainly not perfect, blockchain and cryptocurrency enable people to securely transact with one another without the need for third-party verifiers. Despite crypto’s promise, unfortunately, mainstream society has not adopted it just yet. 

How DeFi Presents a Solution

People are understandably wary of blockchain and cryptocurrency. They sound like jargon only highly educated computer scientists would ever bother trying to wrap their minds around, so people stick to the fiat currency they’re familiar with. 

This is not their fault, of course. Cryptocurrency has a long way to go in making itself accessible for everyone. DeFi, however, makes cryptocurrency as available as it’s ever been. 

No institutions run it. No escrow is necessary. No third-party authenticators or enforcers need to be involved. Decentralized finance, along with accompanying decentralized applications (DApps) — or “smart contracts” — enable everyone with an internet connection to transact with one another, lowering barriers to entry. 

The centrally controlled system is completely transparent, so no one has to rely on a third-party to ensure transactions are holding up their ends of respective bargains. DeFi also ensures complete anonymity, which protects users’ data and personal information.

DeFi Is Coming Your Way

People unfamiliar with the crypto world may still feel suspicious of DeFi. They’ve heard of bitcoin’s famous price fluctuations, so how could cryptocurrency possibly be practical? Even if the exchange system boasts several advantages, those benefits hardly matter if the currency itself prohibits people from making plans to buy anything. 

Fortunately, stablecoins (like the previously mentioned Dai) exist, which are tied to the U.S. dollar and are becoming increasingly popular. Stablecoins can be exchanged via blockchain, and users can reliably predict what they will be worth the next day. 

DeFi is expected to grow as the ability to trade between different cryptocurrencies becomes available. Previously, various blockchains could only support their native cryptocurrencies, so anyone with bitcoin who wanted to take advantage of Ethereum’s higher transaction speeds would have to first convert their bitcoin into an Ethereum-supported altcoin. Bitcoin holders could lose their price exposure in the process and potentially lose a significant amount of money. 

Fortunately, a company named Swingby is capable of facilitating cross-chain transactions. Swingby’s platform, Skybridge, leverages pegged 1:1 swaps, which creates a “bridge” between blockchains that couldn’t interact otherwise. Cryptocurrency holders can use Skybridge to take advantage of their favorite blockchains’ features without needing to use its native currency, such as lower transaction fees, lending platforms, specific decentralized exchanges, faster settlement times, and more. 

This ability decongests popular blockchains, which can dramatically improve transaction speeds. Skybridge also maintains users’ complete anonymity and doesn’t require central custodians. Bitcoin exchanges on the Binance blockchain are now live through Swingby’s platform. 

Bridging the gap between individual blockchains subsequently closes the rift between the public and decentralized finance. People need and deserve a financial system free of parties that don’t have their best interests at heart, and DeFi is on its way to being this solution. Opinions expressed here are the opinions of the author. Influencive does not endorse or review brands mentioned; does not and can not investigate relationships with brands, products, and people mentioned and is up to the author to disclose. VIP Contributors and Contributors, amongst other accounts and articles, are professional fee-based.