DeFi Use Cases

The financial industry has seen a lot of major changes in recent times due to the rise of decentralised finance (DeFi). They have brought a permissionless system that offers immutability, interoperability, transparency and programmability. It has a variety of use cases that you can implement based on your requirement. 

In this article, you will read about the top use cases that DeFi offers.  

Top 10 DeFi use cases

The top 10 DeFi use cases are:

1. Decentralised autonomous organisations

Decentralised autonomous organisations or DAOs, serve the role of centralised financial organisations in DeFi. They perform core financial activities like managing assets, fundraising, implementing governance, etc. By nature, DAOs are decentralised, meaning they do not have a governing body. Each decision in a DAO is collectively taken by token holders by a vote. 

DAOs offer great transparency as all their actions are publicly viewable. They remove the need for third parties by using smart contracts for all their activities, thereby making the platform corruption free.    

You can use decentralised autonomous organisations for the following purposes:

• Executing proposals
• Crowdfunding
• Governance of decentralised applications
• NFT investing and more

2. Managing assets

Decentralised finances offer you more control when managing your assets. Many top DeFi projects offer services enabling you to buy, sell, and transfer digital assets. 

Unlike traditional centralised finances, you do not have to share your passwords with the organisation. DeFi’s like Set Protocol, Zerion and DeFi Saver help their users by encrypting sensitive data and allowing them to store it on their personal devices. This unique feature ensures that only the users can access and manage their assets. 

You can consider it one of the most practical DeFi use cases. 

3. Analysis and risk management tools

Decentralised finances offer more agility to businesses by allowing them to analyse an unprecedented amount of data via analysis and risk management tools. This enables them to make well-informed choices, discover new opportunities and plan better risk management tactics. CoDeFi Data and DeFi Pulse are two great examples in this regard. 

4. Insurance

Regarding insurance, decentralised finance can streamline the entire process. DeFis use smart contracts, which can make insurance agencies' documentation, auditing and payout processes much faster. 

Nexus Mutual, Risk Harbor and Unslashed Finance are some of the best names you can trust upon. 

5. Decentralised exchanges

Decentralised exchanges (DEXs) are platforms you can use to buy and sell cryptocurrencies, derivative trading and asset trading. These platforms do not have a central authority, thus negating the risk of market or asset manipulation. They automate all their processes with the help of smart contracts. 

Compared to centralised exchanges, these exchanges offer faster transactions, lower fees, and give you complete control over your assets. 

Defi Swap, Uniswap, Pancakeswap, Curve, 1 Inch, etc., are some reputable names. 

6. Margin trading

In margin trading, investors take out loans for a short period from intermediaries to invest and earn profit. Decentralised finance has changed the game by leveraging smart contracts to enact a decentralised credit policy.  

Thus, traders do not have to rely on brokers to borrow money, and the process has become fast and easy. Experts also call this type of system autonomous money markets. 

dYdX and Compound are two good examples in this regard. 

7. Know Your Transaction (KYT)

Another benefit financial institutions can get from DeFi is Know Your Transaction (KYT). Most agencies today use Know Your Customer (KYC) to execute AML and CFT measures. However, they lack privacy. 

The Know Your Transaction mechanism helps maintain your privacy. This decentralised architecture focuses on your payment patterns to track your identity. 

By using this type of mechanism, organisations can analyse your transaction activity in real-time and, at the same time, protect your privacy.

8. Tokenisation of derivatives

Decentralised finance technology allows you to leverage smart contracts to tokenise derivatives. The underlying asset works like a traditional security, and the value of the contract depends upon it. With the help of this system, you can tokenise derivatives like fiat currencies, bonds, market indexes, commodities, stock prices, interest rates, etc. 

dYdX and Synthetix are two good examples in this regard. 

9. DeFi gaming

The gaming industry has seen a boom in recent years due to the integration of DeFi. Gamers worldwide can now earn passive income by doing what they like the most. DeFi games allow their players to earn cryptocurrencies and NFTs as rewards. 

The in-game items of these games are based on NFTs, which players can buy, sell and trade among them. NFTs (Non-fungible tokens) have their own unique value, and depending upon their uniqueness and rarity; players can sell them for a profit. 

Axie Infinity is a very popular game in this segment. It has a player base of millions. Many Philippine gamers earn a daily wage by playing this game. 

10. Peer-to-peer borrowing and lending

Decentralised finance has been the game changer in the borrowing and lending system. Earlier, you had to rely on financial intuitions to receive or give out loans. Now, you can transact directly with other individuals by giving and taking loans using peer-to-peer lending (P2P). 

You can use this system to get a better return for your cash investment than saving it in a bank account. Furthermore, if you are looking for a loan, P2P platforms can provide you with an interest rate that is lesser than traditional banks. 

Uniswap, Maker and Aave are some of the best examples.  

As blockchain technology evolves, you will see many more use cases of DeFi. They provide a faster, safer and corruption-free alternative to many of the traditional systems that industries use the current date. Experts predict further adoption of DeFi across multiple industries and sectors worldwide in the near future.