The Future of DeFi with Filecoin
The meteoric rise of decentralized finance (DeFi) over the past year has served as validation of decentralized networks’ ability to refashion the world of investing. Decentralized platforms have already begun to enable new possibilities that deliver on the promise of blockchains and the digital assets they support. But this is just the start: DeFi has the potential to reshape our economic system down to its foundations, changing the way people invest, who is allowed to participate, and how markets themselves are governed.
DeFi already offers clear benefits to investors, beyond the straightforward profits made as markets have continued to rise. That’s because in addition to providing more investment opportunities to institutions and individuals, DeFi offers entirely new ways to earn. From novel debt instruments to yield farming, DeFi is not only decentralizing existing investing patterns, but forging entirely new ones.
Most recently, staking has gained prominence among DeFi investors. This has been driven, in particular, by the launch of Ethereum 2.0, which promises attractive returns in exchange for locking ETH into an illiquid smart contract for an undetermined period of time. Staking offers impressive yields over and above what one would earn from simply holding a given digital asset. And it’s innovative in that by offering attractive incentives, it facilitates the efficient operation and growth of entire networks, creating a positive feedback loop for the DeFi space broadly.
Beyond mechanics, there’s another key area where DeFi is changing the rules: access. Until now, financial markets have been opaque and controlled by powerful gatekeepers. They deny access to ordinary investors through roadblocks such as accredited investor regulations. Moreover, centralized financial institutions such as banks may bar anyone from accessing or acting on a financial platform with no recourse for the affected party. This was most recently demonstrated by the controversy surrounding GameStop, where financial institutions halted all trading to stop prevent investors from bidding up the price.
Where Filecoin Fits into DeFi
It’s clear that DeFi is a powerful force with impact that is only beginning to be felt. Yet for all its promise and success to date, DeFi still presents important obstacles to would-be participants. Security is a key challenge: given how nascent the space remains, it’s inevitable that some projects will fail and some investors will lose money. But the bigger challenge for the long-term adoption of DeFi is usability.
DeFi platforms can be challenging to use. They often require investors to obtain, move, deposit, mint, burn, and redeem assets across multiple platforms with different specifications. Assets can be stolen or misplaced. The returns are appealing, but in many cases, DeFi is still not for the faint of heart.
Filecoin is working to make DeFi investing easier by expanding the amount of data apps can process. Sound investing is based on data, but until now, it hasn’t been possible to store large data sets on a decentralized network like Ethereum. DeFi investors’ ability to gain clear insights into markets has been limited. But Filecoin allows for the analysis of large amounts of data on a decentralized platform native to blockchain. This opens up the ability for DeFi investors to derive the insights they need to invest wisely across this burgeoning sector.
Filecoin’s decentralized data storage can serve to relieve some of the load that places stress on the Ethereum blockchain. The large amounts of data stored on-chain cause latency to increase, making trading slower and more difficult. On Ethereum, information such as payout schedules and bonding curves - which provide key insights for investors but take up a large amount of storage - can be stored by Filecoin in a decentralized way. This frees up the Layer-1 chain to process transactions.
The role of Filecoin in DeFi is already happening. The network has incorporated Infura’s developer API to allow programmers throughout the Ethereum ecosystem to easily integrate with the platform. Additionally, Filecoin is supported by The DeFi Bridge, which allows people to use FIL in the Ren Virtual Machine. The community will continue to see additional integrations to support growth and usability across the DeFi space.