Decentralized Finance or popularly known as DeFi is a crypto technology that aims to disrupt the financial system currently in place by giving the public new solutions on a public blockchain. They are in the market to reshape the existing financial system run by centralization and allowing people to interact in a secure, and decentralized zone.

This system provides a solution to the issue of trust people have with these systems as they take the issue of trust out of the people’s hand and places it in a code which it uses to run its total security. With its use of blockchain technology, they have been able to eliminate single points of failure by recording them immediately why spreading them across thousands of nodes.

With this new development, expect a new era in the financial industry. However, this new crypto coin has its challenges which we would examine and try to proffer a solution to its challenge.

DeFi Challenges and How to Solve Them

Transaction system

With all the success of DeFi, it still runs its transaction on the Ethereum blockchain. Each of these transactions cost a certain amount of Ethereum (ETH) for the transaction to be recorded on the blockchain. With the increase in the popularity of DeFi, the cost of the transaction will strongly increase depending on the current usage of the blockchain.

To solve this issue, DeFi has to find a way to get on blockchain themselves so the transaction would not be charged in ETH to settle on Blockchain. Here is how’s its explained on Bitcoin Formula review.

Scalability

DeFi is currently running into a wall it could avoid with its scalability issue. Since blockchain requires every transaction to be registered on the blockchain, not being registered on any blockchain would limit the number of transactions a user can make at a time. However, being on the Ethereum network can guarantee the security of the network’s transaction, it comes at a cost.

What DeFi lacks is the ability to allow cross-chain transfers of data or assets. Take for example Relite Finance, a brand that allows cross-chain but operates on Polkadot, a different blockchain. Relite finance has allowed seamless communication on their platform and that has solved the issues of scalability. As DeFi lacks interoperability which is important to a majority of users because of the access it guarantees, they need to activate such options with their service.

Complexity

Complexity is another issue DeFi is facing and this issue is also tackled by Relite. The goal of any digital financial system is to provide a scattered application that can be used by everyone to borrow and to lend without much complexity.
To solve this issue, the solution is for DeFi to reduce the cost of getting involved with this software. They need to introduce more people to this financial system and also try to make the software easy to use and understand. If you compare the UI of this system to that of Relite, you will see which has more simplicity. DeFi still has their work cut out for them because simplicity is of utmost importance to such a financial system. Even though a decentralized financial system is the main aim, providing an equal opportunity for high-income earners and average humans will boost this business faster than any other factor.

Conclusion

Even though DeFi offers one of the best systems in the world right now they still have room for improvement which will be important to their growth and adoption. There is a huge potential to prosper whether they do it alone or they combine it with traditional systems. Whatever solutions that will help this system ease the effect of the impending economic crisis will be important.