DEFI CRYPTOCURRENCY IN SMEs EVOLVED AS NEW FUNDING
WHAT IS DEFI?
We are all familiar with Wifi. In recent decades, there is another word booming which is Defi. Defi is also a cool term similar to Wifi. Defi is also simple as Wifi and it too has technical functioning.
Defi-Decentralized finance. With Defi, you can do most of the things that banks support. You can borrow, lend, earn interest, buy insurance, trade derivatives, trade assets and much more.
Defi has broken the stereotype of the traditional market. Defi is faster than centralized finance and it doesn't require paperwork or a third party, as with crypto generally Defi is a peer-to-peer i.e directly between two people. It is global and synonymous.
Defi takes the basic premise of BItcoin and digital money, it acts as a digital alternative to all financial institutions. Defi is open, free and creates a fair financial market that is all accessible to anyone with an internet connection.
BENEFITS
Defi is pseudonymous- you don't need to provide your name, e-mail address or any personal information.
Defi is flexible- you can move your assets anywhere for example from Bangalore (India) to the East coast (USA), anywhere at any time without asking for permission and don't need to wait for long transfers to finish.
Defi is open — you don't need to apply for anything or open an account. You just get access by creating a Defi wallet.
Defi is fast — the interest rate and rewards get updated rapidly.
HOW DEFI WORKS
We can use Defi using a software called DAP’s (Decentralised app)Most of the software run on the Ethereum blockchain.
Like the Bank system there is no procedure here ie you don’t need to fill out the application form to open an account.
Ethereum is a decentralized digital computing platform where automated financial applications are being built to connect the global economy. It is automated market makers, NFTs exchanges, currencies and so much more
DEFI TAKE OVER ON SME
SMEs- Small and Medium-size Enterprises need money for their capital to start the business or owners need money for short term and long term funding to keep the workers on the payroll and keep the business running.
Banks lend less money for their financial need and expect collateral security to give loans.
Sometimes the bank officers do not approve the loan for various reasons. For getting a loan from the bank, there are a lot of procedures.
Whereas Defi ensures fast loan approvals, low fees and speedy transfer of funds. Defi is that the blockchain software enables getting credit facilities without credit checks.
The top 25 Banks have set new lows in total lending, so small Business entrepreneurs find it difficult to get loans from them.
IN SMEs, the management finds that 80% of business fails because of cash flow issues.
Since 2020, an average of 30% of SMEs sectors — in food/accommodation /art/entertainment /services/manufacturers and retailers are closed due to lack of funds and cash flows. There are some SMEs who are struggling to keep the firms live.
Defi is a boon for them. It helps small businesses move forward in their business by getting loans easily without checking their credit credentials.
In the same way, the SMEs are doing better, their assets are lying idle. Defi helps these firms to make them lend their assets and earn more rates of interest.
Banks accept the deposit and give the rate of interest very low compare to Defi gives a 10% rate of interest for the lending. SMEs can protect themselves by way of taking Crypto Insurance from any fraudulence.
Decentralized finance, offers financial instruments without relying on intermediaries such as brokers, exchanges or banks by using smart contracts on a blockchain.
Financial instruments and Digital assets have the following advantages
-immutability
-interoperability
-transparency
-permission-less
-self custody
The financial market attracts every one poor to rich and rich to the super-rich. Especially for the poor and middle class, this has become a dream to raffle overnight. For the business society –Small and Medium Entrepreneurs, this is a boon to have a boom overnight. The Defi platform creates an ideal space for lending, borrowing, trading, saving and earning interest that does not require all the regular/ usual bureaucracy, any unwanted tips/commission including bribes.
CUTOUT THE MIDDLE MAN: Automating the contract process on this platform, removes away the role of intermediaries. It stops the need to engage outside mediators like lawyers/auditors to process agreements between parties.
DEFI makes seamless work and fast execution in starting and finishing.
Equal Opportunity: Many financial opportunities offered through Defi platforms are usually reserved for major financial oligarchies.
Defi provides Derived Interest and Definite financial support to Herald the SMEs effectively, efficiently and enthusiastically.
