As 2021 begins, we are just now starting to see the aftermath of 2020 on the economy with a loss of 140,000 American jobs in December, putting the U.S. into a recession, according to the Department of Labor.
This trend is global as more people, in the hospitality and leisure industries especially, are losing their businesses and jobs.
Luckily, the changing circumstances that coincide with the international crisis have a positive spin. New technologies like DeFi (decentralized finance) are emerging as a savior for small business owners, entrepreneurs, and just about anyone wanting to advance their life.
Find out how cryptocurrency loans and other investment tools using DeFi could save the economy in 2021.
What is DeFi?
DeFi stands for decentralized finance because it is exactly that: a platform that isn’t connected to a bank that offers various financing options.
And instead of using one currency like fiat (USD, EURO, etc.), DeFi projects host a range of cryptocurrencies, stablecoins, and tokens.
Most DeFi protocols are hosted on the ethereum network and use smart contracts to act as mediators of funds. The actions of borrowing, lending, trading, yield farming, and others control the flow of assets to and from its users.
A network mitigated by consensus and automated technology removes the middleman of banks and other financial institutions. It also relieves obstacles like high-interest rates, strict credit restrictions, and demanding contracts.
Our Current System Isn’t Working
This brings us to the other part of the problem. The failing economy reveals an innate problem in the economic system. Something that the true intent of cryptocurrency aims to solve.
The current banking industry is set up for corporations and the wealthy. So much so that America has one of the biggest wealth gaps in the world, which has doubled in range since 1989.
Much of this gap has to do with a perpetual system that aims to keep people in their own poverty using debt that can’t be paid. A major example of this is the banking loan procedure. Getting a loan is hard enough, but paying it off may have you regretting the loan in the first place.
A personal loan could range anywhere from 6% to 36%, depending on credit history and financial standing. Home loans and business loans can be slightly lower than this, but again only if you satisfy the bank’s credit standards.
What Makes DeFi Different?
The great part about DeFi is its ease of use and it low variable interest rates. There are no credit checks, income requirements, or any identity verification at all.
All you need for a crypto loan is some crypto to use as collateral.
The interest rate depends on the crypto, token, or stablecoin and the supply vs. the demand within the DeFi protocol.
You can also choose between a variable or stable interest rate. Variable rates fluctuate based on the supply and demand, which could even put them as low as 0% in some cases.
Another important part of the DeFi lending platform is its lending feature. The liquidity of a coin is supplied by crypto users like you. This means that you can use your assets to earn interest as well, making money by lending on the platform.
All of these factors means that anyone can get a loan for any reason without having to get permission from a bank, then paying high fees for years.
DeFi lending is customizable for any purpose, so getting funds and paying them without accumulating detrimental debt is a very real possibility for the first time.
DeFi Saving the Economy
With over $23 billion locked into DeFi protocols, people now have a large financial platform to compete with traditional banks. They can earn enough interest to be called a salary or borrow funds for self-starting ventures without getting locked into debt for years to come.
The potential of DeFi can help those without jobs find a non-traditional means of investment or relaunch their business with the help of a crypto loan.
Adoption of crypto, blockchain, and decentralized finance isn’t just for the individual either. Major banking institutions across the globe are embracing these technologies as part of their plan to create CBDCs (central bank digital currencies).
The U.S. OCC (Office of the Comptroller of the Currency) made crypto implementation easier by passing recent guidelines that allow banks to use stablecoins and blockchains on their exiting platforms.
It may be the competition from DeFi that is pushing banks to become more decentralized. Think of this transition as a middle-ground for people who favor the stability of an established bank over something as foreign to them as cryptocurrency.
Regardless, any change is good change for it shakes the fabric of the economy that has always served the rich. Just like on the other side of a crisis is a solution.
Getting Started with DeFi
If you are someone who sees DeFi for the potential that it is then you should know this: DeFi is still a young concept. It has many reliable protocols, but it also has its risks.
Be sure to research where you put your money in any circumstance. Safety over profit should be your number one concern.
For the safest DeFi projects read our review of the best DeFi lending platforms and see for yourself.