The Rise Of Decentralized Finance (DeFi): Opportunities For Small Businesses In Emerging Economies
Skeptics and experts have strong opinions about cryptocurrencies, NFTs, and other digital assets but even amidst all the skepticism and criticism, one cannot deny the potential the blockchain technology has in revolutionizing the financial ecosystem
Islamabad (UrduPoint / Pakistan Point News – 20 May, 2023) Skeptics and experts have strong opinions about cryptocurrencies, NFTs, and other digital assets but even amidst all the skepticism and criticism, one cannot deny the potential the blockchain technology has in revolutionizing the financial ecosystem.
The popularity of blockchain technology has given rise to DeFi or Decentralized Finance. The rise of DeFi has opened up new possibilities for individuals to participate in financial activities, especially in regions with limited access to traditional banking services. It empowers individuals to control their finances, access loans, earn interest on their assets, and engage in various investment opportunities.
In this article we will uncover how opportunities presented by DeFi can facilitate small businesses in the emerging economies like Pakistan, and set them up for exponential growth. But first, let’s understand what DeFi is.
Decentralized Finance, or DeFi, refers to a new approach in the world of finance that utilizes blockchain technology and smart contracts to provide financial services without the need for traditional intermediaries like banks. It aims to democratize finance and make it more accessible to everyone.
It has gained significant popularity in recent years as people recognize its potential to revolutionize the financial industry. It offers various benefits such as transparency, increased efficiency, lower costs, and the ability to create innovative financial products.
The Internet, as we know today, has enabled businesses to go online and cater to a larger customer base. It has changed the way we do business – reduced the cost of entry for small businesses significantly and enabled them to operate on limited physical capital. Ecommerce is probably the biggest development of Web 2.0. However, now we are going beyond the digital marketplaces and with Web 3.0, we are talking about decentralized marketplaces.
Having decentralized systems in place, businesses can eliminate the need for intermediaries and keep a larger share of the pie for themselves and in many cases, even enjoy a bigger pie.
- Accessibility to financial services
Imagine the challenges that a business owner from a remote area in Pakistan faces because of the lack of traditional financial resources and limited loan and lending options available. Decentralized finance (DeFi) protocols help business owners overcome these challenges.
It eliminates the need for banks and other intermediaries and promotes peer-to-peer (P2P) transactions over reliable exchanges like Binance. With smartphone and internet connectivity, DeFi can make financial resources available for business owners from unbanked and underbanked areas in Pakistan.
- Lower transaction costs
Because DeFi eliminates (or restricts) the need for intermediaries such as banks, payment processing and conversion systems, manual operators etc. business owners incur lower transaction costs and hence enjoy a bigger share of the pie. In addition, decentralized systems are based on blockchain technology that enables the use of smart contracts. Smart contracts are automated processes that are executed once the predefined conditions are met. With the help of smart contracts, a business owner can optimize the efficiency of the human and capital resources employed and improve business revenue.
- Access to global market
DeFi protocols also enable business owners from emerging economies to participate in the global market. With the help of P2P marketplaces, crypto transactions, and smart contracts, a business generally overcomes most of the limitations that it is otherwise experiencing in the traditional landscape. So businesses can not only enjoy a larger share of the pie but also increase the pie size for everyone to benefit.
- Transparency and security
Security is a big concern for business owners. Because systems are not generally that robust in developing and emerging economies, there is a higher chance of becoming a victim of fraudulent activity. With DeFi systems, every transaction is locked on blockchain, which makes it highly transparent and secure. However, because the transactions are carried out under pseudonyms, it is important to do your own due diligence.
DeFi has opened a world of possibilities and some global players are already benefiting from the technology and gaining competitive advantage by staying ahead of the curve. With the right resources and proper education about decentralized marketplaces, tokenization and DeFi, emerging economies like Pakistan can significantly benefit from the shift that we are experiencing today.
Whether we like it or not, Web 3.0 and DeFi protocols are shaping up the world of finance, business, ecommerce, and more. It is merely our choice whether we ponder too long on the consequences of adopting these technologies or keep up with the world and enjoy the perks while developing a sound understanding of the perils.
