Why investors are betting big on DeFi ahead of the next bull run

In today's era of digital transformation, companies are under constant pressure to innovate to stay competitive with tech-enabled startups and fast-moving unicorns. This has led to a rapid reduction in the lifespan of companies at the peak of success, leaving room for new technologies such as decentralized finance (DeFi).

In the year While firms listed in the S&P 500 lasted an average of 61 years in 1958, that figure has dropped to just 18 years. The pace of disruption is accelerating, and by 2027, it is predicted that 75% of the companies listed on the S&P 500 will disappear.

DeFi to control the financial system

In the year Since the 2008 global financial crisis, the financial system has been grappling with a number of challenges, including inclusion and digitization. Traditional finance (TradFi) has shown resilience but at the expense of financial inclusion.

According to the World Bank, 1.4 billion people worldwide do not have a bank account. This is “typically women, the poor, uneducated and rural” who are deprived of essential financial services and perpetuates the cycle of poverty.

“To reach them, governments and the private sector must work hand in hand to create the policies and practices needed to build trust in financial service providers, confidence in using financial products, innovative product designs and a strong and enforceable consumer protection framework,” said Leora Clapper, Lead Economist in Development Economics, Global Fins Report. .

DeFi is a blockchain-based form of finance that does not rely on central financial intermediaries. These include brokers, exchanges or banks that offer traditional financial instruments.

Instead, DeFi offers many financial services. From lending to borrowing and trading in the blockchain, DeFI ensures that transactions are publicly available, transparent and immutable.

Read more: TradFi vs. DeFi: Everything you need to know

DeFi is set to rewrite the rulebook of global financial systems as it offers many advantages over TradFi. It enables real-time value movement, lowers barriers to entry and puts users in control of their assets, to name a few.

“Length onboarding processes, as well as the amount of time involved in trade execution and post-trade activities, make TradFi more expensive than it needs to be. The sector could cut up to 80% of its current post-trade settlement costs by making full use of blockchain technology,” Concordium DeFi said. -TradFi report read.

Defy's potential in the next bull run has caught the attention of the traditional banking sector. Daily trading volume in this sector has exceeded $10 billion, and locked-in assets have grown from less than $1 billion to over $100 billion in a short period of time.

DeFi's decentralized structure fuels its rapid growth. Eliminates the need for intermediaries, greatly reduces costs and expenses.

This is a game changer for the unbanked population in developing economies. Now they can access financial services without the need for a traditional bank account.

“By removing the need for middle management of assets, blockchain enables the most efficient allocation of resources, thereby ensuring that every member of society has access to unbiased credit services. According to Concordium Chairman and Founder, Lars Seier Christensen, Blockchain can address a catalog of inefficiencies in the traditional financial sector by streamlining processes and enabling greater inclusiveness and By facilitating a high level of international accessibility.

Regulatory frameworks to promote adoption

However, for DeFi to fully exploit the potential of blockchain technology and drive mainstream adoption, a regulatory framework is critical. Legal transparency not only protects users, but also prevents market manipulation, promoting financial stability in DeFi.

Additionally, a regulatory framework fosters wider acceptance, adoption and trust. Thus paving the way for DeFi exponential growth in the next bull run.

“If they want to achieve mainstream adoption, DeFi and crypto need to integrate some of the regulatory and self-regulatory practices that have brought practical stability to TradFi. But there is an urgent need for global economic stewards to explore DeFi and crypto as solutions to many of their problems,” said economist Michael Casey.

Read more: 7 must-have cryptocurrencies for your portfolio before the next bull run

Integration of a self-sovereign identity framework at the protocol level can solve Know Your Customer (KYC) compliance. thus reducing the risk of identity theft or fraud while ensuring privacy and security. This regulatory-ready framework significantly lowers barriers to entry for businesses, propelling DeFi to become a mainstream financial solution.

DeFi stands as a symbol of financial innovation as it continues to develop and integrate regulatory and self-regulatory practices. JPMorgan Chase and Bank of America are already exploring blockchain technology, signaling a promising transition to a DeFi-dominated financial ecosystem.

“DeFi applications require development to produce a differentiated product and positive user experience that drives adoption and usage. Increasing adoption and usage increases revenues and, if designed properly, brings native appreciation, both of which can be reinvested in development.” [Althought DeFi applications are immature,] “We are at the very beginning of a major shift in applications that will take place over the next 30 years,” Bank of America reported.

With its potential to foster financial inclusion, reduce costs and promote innovation, DeFi could be the biggest beneficiary of the coming bull run, reshaping the global financial landscape.