In this article I share my thoughts on the innovation that Decentralized Finance (DeFi) is bridging, the challenges, and the opportunities.
Decentralized Finance is an amazing concept powered by blockchain technology and encompassing all aspects of financial transactions via a smart contract, running on a shared or exclusive blockchain network.
As the name implies, Decentralized Finance means there is no central authority governing and regulating. You simply cannot underestimate the power of this simple fact — there is no central authority. This innovation quite simply creates a new realm in which to transact. A new world, a new life.
In Diamoons case the central authority is replaced by the community and project leaders. On the other hand, the regulation is done by the network computers of the Binance Smart Chain. There are no other regulations, no borders, no restrictions, nothing. This means no government, no regulatory body, and no legal enforcement can be brought against our DeFi token.
As Mark Cuban has noted, Yield Farming via Staking and Liquidity Providing are a core feature of most, if not all DeFi projects. Diamoons Finance is considered a Yield Farming DeFi project — but what exactly does this mean? And how and why is this an innovation?
The tokenomics are the core innovation (also called the taxing system). Every buy&sell transaction is taxed 10%:
· 5% goes to a liquidity pool
· 4% is redistributed to holders
· 1% goes to finance the project
The 5% liquidity tax increases the stability and constantly grows the monetary base of the DeFi token. The 4% redistribution is the equivalent of a dividend from a publicly traded company. These two “taxes” are a core innovation of DeFi tokens as a store of value and potential growth.
Of course, major growth comes from adoption. The larger the community, the more transactions will happen, and the more stable the DeFi token will become.
Yield farming is a new kind of investment product. You purchase the tokens, and you get rewarded in tokens as transactions happen. When you need the funds you simply sell in the market.
As the barriers to entry are nearly 0 (an internet connection, a computer and some initial funds to start), we are creating a new investment product for investors all over the world to join and participate. A place to store value and funds for a while, outside of governement or bank control.
The bad reputation comes from the many scams that have happenned — the dark side of not having a central authority regulating and validating. Gaining trust from investors is probably the biggest challenge for DeFi tokens.
On the other hand, the opportunities that lie ahead as simply enormous: the potential market is the whole world. There is also an opporutnity to create a brand and leverage that in all the usual ways brands can be leveraged.
In conclusion, the innovations powered by blockchain are fanstastic, and although some major challenges lie ahead for DeFi tokens, the potential to grow, expand, and develop are massive.