Decentralized finance – often referred to as “DeFi” – is a hot topic in the cryptocurrency world, with billions of dollars of value locked in various protocols and platforms.
Basically, the decentralized financial movement aims to shake up the decades-old financial system by democratizing control of banking, lending and trading – putting it in the hands of users rather than central authorities.
In many ways, DeFi is a direct response to the centralized, top-down models that have long defined the world of finance.
The technology that supports this industry is still in its early stages of development, accompanied by teething problems. However, the potential is a game changer.
Decentralized Finance Explained
From lending and borrowing platforms to tokenized stablecoins and BTC, the DeFi ecosystem has launched a vast network of integrated financial protocols and instruments.
By deploying Ethereum’s decentralized infrastructure, DeFi developers are creating an alternative financial system and this allow users to obtain capital without going through a traditional bank by offering loans backed by cryptocurrencies.
This means users can borrow and lend directly to each other, trade cryptocurrencies and other assets without going through a centralized exchange, and even earn interest on their digital assets.
This shift from centralized to decentralized finance offers several benefits, including improved security, transparency and inclusion.
The result is a more open, accessible and resilient financial system that benefits everyone, not just a privileged few.
Centralized finance today
The financial services industry is one of the most centralized industries in the world. A small number of large institutions control almost all banking, lending and trading. This gives these institutions great power over consumers who need to use their services.
The global financial crisis is a prime example of how this centralized system can fail. When the institutions that control the system make bad decisions, it can have a ripple effect that harms consumers and the economy.
Additionally, these systems are often opaque, making it difficult for consumers to understand how they work or to hold institutions accountable for their actions.
In traditional finance (TradFi), intermediaries such as banks, brokers and exchanges centralize financial services and charge exorbitant fees for their role in facilitating transactions.
The ubiquity of centralized financial systems has created several problems for consumers, including high fees, low interest rates on savings, and a lack of transparency.
How is decentralized finance changing the banking game?
By leveraging the power of Ethereum’s decentralized infrastructure, DeFi protocols can bypass traditional financial intermediaries and connect users directly to the markets and services they need.
In doing so, DeFi is giving rise to a new paradigm in banking, lending, and commerce that could disrupt the centralized status quo.
DeFi applications are built on decentralized protocols and are available to anyone with an internet connection. This contrasts with traditional financial apps, which are often only available to users in developed countries.
Although DeFi is still in its infancy, it has the potential to disrupt the traditional banking system. DeFi could make financial transactions cheaper, faster and more secure by eliminating central intermediaries.
Additionally, DeFi could give rise to new types of financial instruments and services which is not possible with traditional banking services.
Growing interests in decentralized finance in Southeast Asia
Despite great progress in financial inclusion in Southeast Asia in recent years, half of the region’s population remains unbanked and without access to financial products.
A study conducted by the Center for Strategic and International Studies found that 73 percent of the population in Southeast Asia does not have a formal bank account. This is due to several factors, such as lack of infrastructure, low income levels and limited financial literacy.
In turn, the lack of access to formal banking services allows for the development of alternative crypto-related financing.
White Star Capital said crypto adoption rate in Southeast Asia in 2021 on average 3.5 percent. Singapore nevertheless stands out, with almost 10% of its population owning cryptocurrencies, ahead of the United States with 8.3%.
With a young, tech-savvy population and a growing appetite for risk, Southeast Asia is poised for DeFi growth. The region’s largest economies, Indonesia and Vietnam, are both experiencing rapid economic growth and rising middle-class wealth.
This is fueling demand for alternative investments, such as cryptocurrencies, which offer high returns and are not correlated to traditional markets.
Vietnam and Thailand claimed their rights around the world of decentralized finance as the second and third most active countries in terms of interaction with DeFi platforms, according to Statista.
The Philippines, Indonesia, and Singapore have also seen significant growth in value locked in Ethereum smart contracts over the past year.
Southeast Asian DeFi Companies Solve TradFi Problems
Toko Token is the first DeFI project in Indonesia with various utilities such as exchange, centralized finance and decentralized finance.
Toko Token solves the problem of financial inclusion by providing access to crypto assets and services that would otherwise be unavailable to the unbanked population.
In doing so, Toko Token empowers Indonesians and opens up a world of new economic opportunities.
Ape Board, based in Thailand, is a cross-chain decentralized finance dashboard where users can monitor their DeFi activities and portfolio. The platform connects to major blockchains such as Ethereum, Binance Smart Chain, Polkadot and Solana and supports over 1,000 DeFi protocols.
Ape Board users can track their crypto assets, loans, interest rates, income, and transaction history all in one place. The dashboard also includes a newsfeed with the latest DeFi news and information and a directory of DeFi protocols and projects.
The company has raised RM4.71 million ($1.2 million) in seed funding from investors including Spartan Capital, Defiance Capital, Long Hash Ventures and Do Kwon.
The Future of DeFi in Southeast Asia
THE population in Southeast Asia expected to reach more than 721 million by 2030. This boom, combined with the region’s young and growing middle class, has made Southeast Asia an attractive market for online services.
And as more people in the region turn to the internet to meet their needs, new DeFi startups will emerge to meet the demand for innovative digital solutions.
The growing DeFi ecosystem presents a number of opportunities for investors and users in Southeast Asia. With the region’s high mobile penetration rates and large unbanked population, DeFi can provide much-needed financial services to those underserved by the traditional banking system.