Why will DeFi see the biggest rise in the next bull market?

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In 1958, the average lifespan of an S&P 500 company was 61 years; today, that number has dropped to just 18 years. The pace of disruption is accelerating, with 75% of the companies currently in the S&P 500 expected to be gone by 2027.

DeFi takes over the financial system

After the 2008 global financial crisis, the financial system faced many challenges such as inclusion and digitalization. Traditional finance (TradFi) shows resilience, but at the cost of financial inclusion.

According to the World Bank, 1.4 billion people worldwide are unbanked. This leaves “women who tend to be more poor, less educated and live in rural areas” without access to basic financial services, perpetuating the cycle of poverty.

“To achieve these goals, governments and the private sector need to work closely together to develop the necessary policies and practices to build trust in financial service providers in the use of financial products and services. Financial products, appropriate new product design, and Leora Klapper – Chief Economist of Development Economics, Vice President of Findex Global Reporting emphasize.

DeFi is a form of finance based on blockchain that does not rely on centralized financial intermediaries. DeFi involves brokers, exchanges or banks offering traditional financial instruments.

Instead, DeFi offers a wide variety of financial services. From lending to blockchain transactions, it ensures transactions are open, transparent and immutable.

Therefore, DeFi is expected to rewrite the rulebook of the global financial system as it brings a lot of benefits compared to TradFi. It enables real-time value flow, reduces barriers to entry and ensures users retain control of their assets,…

“The lengthy implementation process and the time required to execute trades and post-trade activities make TradFi’s costs much higher than they need to be. By fully leveraging blockchain technology, the industry can reduce 80% of current post-trade settlement costs… …Overall, it is estimated that “moving securities on the blockchain could save between $17 billion and $24 billion annually in processing costs for global trade,” Concordium DeFi-TradFi reports explain.

The potential of DeFi in the next bull market has attracted the attention of the traditional banking industry. Daily trading volume at the industry’s peak exceeded $10 billion, and assets locked grew from less than $1 billion to over $100 billion in just two years.

Decentralized Finance

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DeFi’s decentralized structure drives rapid growth. It eliminates the need for intermediaries and significantly reduces administrative fees and processing costs.

This is a game changer for the unbanked in emerging economies. They can now access financial services without a traditional bank account.

“By eliminating the need for asset management intermediaries, blockchain enables the most efficient allocation of resources, ensuring that every member of society has unrestricted access to credit services.” Lars Seier, Chairman and Founder of Concordium “Blockchain is a powerful tool that can correct a combination of inefficiencies in the traditional financial sector by streamlining processes and promoting greater inclusion and global reach around the world,” Christensen said.

Regulatory framework to promote adoption

However, for DeFi to realize the full potential of blockchain technology and drive widespread adoption, a regulatory framework is crucial. Legal clarity not only protects users, but also prevents market manipulation and promotes financial stability in DeFi.

Additionally, the regulatory framework will promote wider acceptance, adoption and trust. Thus, paving the way for exponential growth in DeFi during the next bull run.

“If DeFi and cryptocurrencies are to gain widespread adoption in mainstream markets, they must integrate some governance and self-regulatory methods that bring functional stability to TradFi. But those who govern the global economy also urgently need to find solutions to the remaining problems of DeFi and crypto Monetary solutions.” Economic researcher Michael Casey explain.

Integrating a self-sovereign ID framework at the protocol level can solve identity verification (KYC) compliance issues. Therefore, the risk of identity theft or fraud can be reduced while still ensuring privacy and security. This regulatory framework has significantly lowered the entry threshold for enterprises and promoted DeFi to become a mainstream financial solution.

Decentralized Finance

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As DeFi continues to evolve and integrate regulatory and self-regulatory activities, it is considered a beacon of financial innovation. JPMorgan Chase and Bank of America are exploring blockchain technology, showing good prospects for the transition to a DeFi-dominated financial ecosystem.

“DeFi applications need to be developed to create differentiated products and positive user experiences that drive adoption and usage. If designed correctly, increased adoption and usage will lead to increased revenue and native token value. Both can be reinvested development. Although DeFi applications are not yet mature, we are still in the early stages of the major changes in applications that are likely to occur in the next 30 years.”

With the potential to promote financial inclusion, reduce costs and stimulate innovation, DeFi may be the biggest beneficiary of the coming bull market, reshaping the global financial landscape.

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