The financial institution links fiat currencies to cryptocurrency

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                                <p>Decentralized finance (DeFi) is an umbrella term for financial products (lending, trading, savings, etc.) that do not require a central institution such as a bank or exchange broker.  Instead, they are run on smart contracts, which execute automatically when certain conditions are met.  Users deal directly with each other and retain control of their assets.

The first DeFi apps appeared around 2017, but in 2020-2021 the market really exploded, reaching a valuation of $100 billion. Apps like Compound, Curve, and Uniswap handle billions in size.

However, the DeFi industry faces some huge challenges. Perhaps the biggest is the peg of fiat currencies (traditional currencies, such as the US dollar) and cryptocurrencies. The general consensus is that DeFi can and should foster the coexistence of both digital currencies and cryptocurrencies – but how? This guide explores promising solutions.

Offer bank lending services for both Crypto and Fiat

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DeFi can generate synergies between cryptocurrencies and fiat currencies by integrating traditional currencies into decentralized financial products. After all, securities-based banking systems have been the lifeblood of the global economy for as long as there has been a global economy. Banking services such as easy lending contribute significantly to the sustainability of the financial sector globally and the citizens who depend on loans in their daily lives.

DeFi can unite the crypto and fiat worlds by offering similar lending and banking services using both types of currencies side by side. Examples include Compound, MELD, and Aave. Most of these platforms offer loans in cryptocurrency as well as fiat, backed by an existing cryptocurrency stake, or vice versa. By doing this, DeFi network crypto holders have faster access to benchmark assets without losing or diluting their stake in existing crypto.

Already, there are many DeFi networks that offer lending services using both digital currencies and cryptocurrencies. Offering cash loans using cryptocurrencies as collateral is a good way to foster this kind of symbiosis between old and new currencies.

Allow fiat support in stablecoins

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Another promising way to allow crypto and DeFi to coexist is to take advantage of the concept of stablecoins. Stable coins are simply a class of crypto assets that are backed by other assets such as gold, commodities, or fiat currencies such as the US dollar.

However, it is critical that more upcoming DeFi projects provide similar stablecoin services to allow for the coexistence of both crypto and fiat currencies in the financial sector. As stablecoins increase, so will their users, which leads to faster crypto adoption.

Lending Liquidity

Another way for DeFi projects to help ensure the coexistence of crypto and fiat currencies is to allow pools of cash. The fiat liquidity provider presents its fiat assets to the lending pool – its cash assets are then used to make loans to other people.

One of the current platforms offering cash options is the MELD protocol. The network will allow investors and institutions to provide cash using the MELD application on mobile, desktop or web. In the process, investors will earn returns at high APYs. On top of lending cash, this platform will also allow investors to use their line of credit, making crypto assets more liquid.

Allow investors to earn income with fiat and cryptocurrency

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Savings accounts remain one of the most popular banking products, although low interest rates and high inflation mean that the real returns on these accounts are zero or even below zero. DeFi projects offer similar savings products but offer higher profits. DeFi revenue farming is an excellent example: users lock up tokens and get rewarded with more tokens daily, with nominal APYs often above 100%.

DeFi projects often require other investors to deposit their assets in a liquidity pool (equivalent to a savings account). The asset is then loaned to another person who offers another asset as collateral.

When lending cash, DeFi projects often create a liquidity pool to deposit cash, with the cash then being offered to others who hold additional collateral for cryptocurrency in return. However, in this case, individual fiat depositors will earn interest-bearing rewards after the loan is paid off.

Increased ease of cryptocurrency exchange fatalities

Related: Here’s how you can leverage DeFi to increase profitability

Providing better liquidity for crypto-tokens is another way for the Defi space to coexist with both crypto and coins. Already, there are many cryptocurrency exchanges that offer liquidity for assets – however, it takes a lot of time to change tokens into cash with most of them. They are not highly liquid by default.

However, DeFi projects can help simplify the problem. There are many ways in which this can be achieved.

Expert Ken Oling points out several options: “One of them is to provide the option to buy cryptocurrency directly through bank accounts or other legal options. Decentralized exchanges, for example, can make it easier for investors to buy cryptocurrency using credit cards. By doing so, There will be ease in converting fiat currencies into cryptocurrencies.

Second, DeFi projects can provide instant cash access to those who own DeFi assets. Lending platforms can give cryptocurrency investors a line of credit. Moreover, Defi projects can be linked with banking institutions and other money changers. The result will provide more ease in exchanging cryptocurrency into fiat currency and vice versa.”

last word

This guide explores how DeFi can provide the coexistence of crypto and fiat currencies. There is an urgent need to ensure that there is a good connection between cryptocurrency and cryptocurrency so that the two coexist. DeFi has already played a major role in connecting cash and crypto assets.

DeFi networks provide essential services such as lending and yield farming, all of which can make room for securities. In lending, DeFi projects allow people to obtain paper loans using cryptocurrencies as collateral. By doing so, they provide a pool for investors to provide cash flow. There is no doubt that DeFi is a new and powerful tool in the financial market to bring more money to more people in a safe, liquid and volatile manner.

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