By John Brown
Blockchain, crypto, NFTs, metaverse, decentralized finance — these technologies have been gaining popularity in recent years because of their ability and potential to change how we interact with the world. Outdated systems are starting to crumble with further implementation of these new technologies.
In this article, we will focus on DeFi, or decentralized finance, and its role in the metaverse.
What Is DeFi?
DeFi, or decentralized finance, enables financial transactions without the usual intermediaries present in traditional finance. For example, in today’s conventional economic landscape, you have to go through a broker or a bank if you want to get a loan.
However, to make the process easier, you can also rely on online lending platforms like GetCash.com to get unsecured payday loans with shorter wait times. With lending platforms like these, you have access to vetted lenders that work with individuals with not-so-perfect credit ratings.
That said, DeFi contributes to building a more inclusive economy for everyone by providing open access to financial services that central intermediaries once monopolized. In addition, by eliminating counterparty risk and giving users control over their data, DeFi is ushering in a new era of trustless finance.
With its promise of greater economic empowerment and inclusion, it’s no wonder that decentralized finance has emerged as one of the top trends in the blockchain space.
What Is the Metaverse?
The way we talk about the metaverse is akin to how we talked about the internet in the 70s and 80s. The metaverse is essentially a 3D version of the internet — a “universe” where you can exist digitally. In this parallel universe, you can have an avatar and interact with other avatars.
Experts agree that the metaverse in its truest form doesn’t exist yet because we don’t have the necessary infrastructure to fully realize it. However, when that time comes, it will level up the virtual reality experience. Users will be able to hop into the virtual realm and do things they would also do in real life, such as buying clothes, hosting parties, and even getting married.
What Role Does DeFi Play in the Metaverse?
The metaverse needs several components to be brought into reality — NFTs to serve as identities, DeFi, and on-chain credit scoring. These elements come together uniquely to form a virtual world where you can exist digitally.
Consequently, the metaverse will require a trustless financial system to function well. This is where DeFi comes in. Decentralized finance will provide the crypto-decentralized core structure that the metaverse needs to hold its currencies and economy where users can earn, spend, borrow, lend, or invest without a central governing unit.
However, although the metaverse exists in the digital world, its components are deeply rooted in the physical world. Therefore, if the metaverse wants to include people from all around the globe, it will have to make peace with the fact that governments worldwide will scrutinize and look to regulate it.
The Future of DeFi
Because of decentralized trading in DeFi, assets can be transferred from one form to another without needing a buyer and a seller. Currently, there’s only a handful of assets that can be exchanged in space, but it could include previously illiquid assets like art and real estate in the future.
This could mean that in the next decade, you can walk into a store and pay using a digital wallet that holds all kinds of assets that you own — perhaps some US dollars, Bitcoin, or NFTs.
You could essentially come up to the checkout counter, and a simple scanning of your smartphone will allow a transaction from your digital wallet that holds all of your assets. You’d be able to pay with any asset you want, and the store could accept the payment in whatever form of an asset they wish. With enough liquidity, the possibilities will virtually be endless.
John is a financial analyst but also a man of different interests. He enjoys writing about money and giving financial tips, but he can also dive into relationships, sports, gaming, and other topics. Lives in New York with his wife and a cat.