The collaboration of central bank digital currencies (CBDCs) and decentralized finance (DeFi) will ensure that money is available in the global market without restrictions. The percentage of unbanked individuals will reduce because there are no age or race restrictions on obtaining and using digital currencies.
DeFi is becoming the tool to take away financial power from the governments and give it to the masses. But the central banks are making innovative moves to create their digital currencies. As a result, they will be able to establish regulatory policy and may sustain the monetary system.
But what can we expect from the collaboration CBDCs and DeFi as the future of money?
DeFi and the Future
Since DeFi may be shaping the currency future in the coming decade, it is important to examine some scenarios that DeFi may present to the public. Assuming you want to pay for your next train ticket, but realize that your wallet balance has reduced while trying to make a payment. That may result from an automatic deduction across your wallets.
This is because, by 2030, individuals may not be holding onto cash as savings or pay loans walking into the credit office. You can now pay back the loan automatically by debiting the amount of loan procured based on your asset’s value across all the wallets you own.
As much as DeFi is becoming the key to finance in the nearest decade, central banks across different countries are leveraging central bank decentralized currencies (CBDCs) as tools to tackle DeFi. An instance is what we see with China leading this path due to the success recorded from their previous trials. However, they are working towards state control and censorship.
For individuals who appreciate having absolute freedom over their finances, DeFi is becoming their haven. This will prevent them from being under the radar of the global financial system. As a result, they have access to their money wherever they are and can take loans whenever they desire.
The primary aim of cryptocurrency is to make money available worldwide translate to DeFi’s existing protocols to allow to borrow, lend and swap with liquidity. However, end-users have little to no information on how they are engaging the liquidity sources across the globe. This results from the privacy DeFi platforms present users.
Despite the surge in DeFi adoption, zero-knowledge proof rollups are the tools used to reduce the level of transactional congestions on the blockchain network. As a result, they welcome alternatives to fiat currency, and they can replace them in minutes.
How DeFi May be Challenged
Regardless of the level of adoption happening across the DeFi industry, there are some challenges DeFi will encounter before it can establish its stance in the future of money. Parts of those challenges that may stall its adoption include access to emerging technologies, regulatory concerns, smart contracts’ susceptibility, and volatility of the DeFi market.
Another barrier is blockchain complexity that may be difficult for an average investor or trader. Likewise, the efficiency of blockchain is another problem to address. This relates particularly to energy consumption and transaction costs. On the other hand, alternatives are creating more problems, but technological solutions are springing up. An example is ZK-proof cryptography.
More so, some individuals do not believe in the concept of DeFi and its efficiency. This may result from a lack of adequate knowledge to understand its complexity or the question of processing a chunk of transactions at once. Meanwhile, there are solutions more efficient than Bitcoin, like zk-Rollups.
How DeFi is Beating the Challenges
One important leverage that works for the adoption of innovative technologies globally is massive education. This kind of education does not only include the public. It involves the policymakers and legal department to research how this can best fit the economic movement. This established understanding will make mainstream adoption an easy task for new users.
User interface and experience is another problem to fix in the DeFi industry. Users want to have the best experience while using some platforms. Examples include reducing frictions on the network and transaction costs. Likewise, developers may make it easy to retrieve lost keys while reducing complexity.
If DeFi is looking to establish its space in the future, it must collaborate with local banks to create clarity around regulations. This will make it easy for investors to trust their money with it. As such, individuals will be access DeFi without direct interactions with the blockchain technology from their apps of choice. This collaboration may be a great tool for mainstream establishment.
DeFi is Establishing Its Space
There is clarity that DeFi will live beyond the next decade, and it may be the center of finance by 2030. But there are lots of issues to address if that will be feasible. Although the continuous efforts of different governments using CBDCs to establish a competition for crypto can be a threat or an opportunity for DeFi.
Yet, the governments must collaborate with decentralized exchanges (DEXs) DeFi is using if truly they want their government currencies to be available to the global market. This enables CBDC’s interoperation and full digital access.
Therefore, DeFi is ensuring that CBDCs have access to blockchain infrastructures that will enable their global rollout. This will expose CBDCs to the public blockchain, allowing the users to swap between digital currencies and crypto.
Regardless of the works required to establish this reality, 2030 will experience the birth of a new money face. This will include CBDCs and DeFi being at the forefront. As a result, users won’t worry about spending from their CBDC balance or DeFi balance.