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A new financial system without systemic control

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The parabolic growth of decentralized finance over the last few years shows that it is here to stay, reshaping the entire financial system. Leveraging smart contracts, DeFi transforms centralized financial models into trusted and transparent protocols.

Additionally, intermediaries are eliminated, making protocols capital-efficient and globally accessible. However, the democratization of finance is only one element of DeFi’s macro vision. The ultimate goal is to create a new financial system where users are in control and can access bank-like features without ever needing a bank account.

DeFi is on the verge of completely eclipsing traditional finance

In recent years, the DeFi space has seen unprecedented growth across different blockchains, increasing TVL from just under $1 billion to over $200 billion. The massive influx of capital and resources has accelerated DeFi innovation, creating new market sectors capable of challenging traditional finance on multiple fronts.

For example, the role of commercial banks in the origination of credit, a core aspect of the financial system, is fulfilled with greater efficiency, access and transparency through lending and borrowing protocols.

Additionally, these protocols offer significantly high returns by integrating various DeFi techniques such as staking, yield farming, and liquidity mining. A typical commercial bank gives a maximum of around 5% interest on savings accounts, while DeFi protocols like Anchor can offer 20% with minimal risk.

Another prominent area where DeFi shines is in capital formation. With traditional financial instruments, companies go through a long process of raising capital and sacrificing a portion to third parties. However, in DeFi, protocols can launch their tokens on DEXs via a launchpad and quickly tap into deep liquidity. This type of crowdfunding removes barriers to entry and improves the overall visibility of the project.

Speaking of visibility, DeFi can also provide exposure and access to any financial position through synthetic assets. These assets are very similar to traditional derivatives such as futures and options, but are not limited to stocks, currencies and commodities.

Because tokenization knows no bounds, synthetic assets can digitally represent any hard-to-get asset or market. For example, if one wants to go crypto mining but does not have the capital to set up mining rigs, one can opt for synthetic assets that track the performance of the Bitcoin hash network.

Interoperability might be the missing key

DeFi is miles ahead of traditional finance in terms of overall functionality and flexibility of financial instruments. But to achieve mass appeal, there has to be an easier way for users to unlock DeFi’s potential. This requires cross-chain and interoperable solutions. Significant advances have been made thanks to protocols like Konstellation Network.

Constellation is a Cosmos-native protocol that is connected to two other blockchains, namely Solana and Binance Smart Chain. It includes multiple markets in modern finance, such as DeFi, CeFi, NFT gaming, and DAOs.

On the DeFi side, Konstellation aims to streamline investing and wealth management for new and seasoned investors. To do this, it has partnered with a reputable digital investment platform called VegaX, which provides powerful crypto strategies and indices with educational content to help users learn more about crypto while making profits. It also allows $DARC token holders to take out $BTC loans at discounted interest rates.

Konstellation also added Taebit, a South Korean DeFi platform, to help investors manage their portfolios efficiently. Users can mint various fiat-pegged stablecoins (aEUR, aUSD, aJPY, aKRW and many more) on Alkemy, a Solana-based stablecoin mining platform, and trade them on Taebit.

NFTs are another area Konstellation Network is heavily invested in. Its native token, DARC, has great significance in a play-to-earn game called Squid Squad OG. Players can enter a Battle Royale tournament for a chance to win exciting crypto cash prizes (up to $USDC 45,600) and $DARC rewards.

DARC tokens act as fuel for the Konstellation ecosystem at every user touchpoint. And recently, its usefulness just got even better. Konstellation has partnered with Osmosis to launch an incentive pool where LP providers will receive regular $Osmo awards and an additional $DARC 10 million in external incentives for two pools, $DARC/$ATOM and $DARC/$ can earn OSMO. This shows that Constellation is getting closer to connecting different funds in DeFi and simplifying cross-chain interactions for investors.

The future of finance looks bright

As DeFi continues to expand, there is a need for projects like the Konstellation Network to drive adoption and build cross-chain infrastructure. Users and institutions can easily tap different capital markets with more interoperable solutions.

This is also preparing the DeFi space for large-scale operations. In the future, everyone will want to be part of decentralized networks and benefit from different asset classes in crypto.

More information about these projects can be found here:

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https://nov.link/cryptoanswers

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