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How Business Can Use Blockchain and DeFi in 2023?

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Since the Covid-19 pandemic, the blockchain and DeFi industries started rapidly growing and developing. Many businesses went online due to isolation and limited travel opportunity. The community had to find methods that would cover their needs hastily. Decentralized finances and blockchain solved the loaning, remote fee pay, and transaction fees issues. Furthermore, it provided assets for investment during a volatile economic period. DeFi and Blockchain industries show a positive trend in development. This article will tell you prime trends in 2023 that can help you do business. 

Web3 — a new reality

First, it is necessary to highlight the new Internet concept currently developing on a blockchain, namely — Web3. The new Internet version will provide income sources for large companies and individuals.

The cryptocurrency ecosystem has all the necessary instruments:

  1. Talented and young developers that have loads of ideas. 
  2. In 2021, the venture funds and investments in crypto startups gained massive capital. 
  3. Creating a supporting infrastructure that facilitates Web3 development.
The modern young generation doesn’t accept exchanges, banks, and other governmental and commercial entities. Many people invest their time and funds in technological processes and innovations that can transform the usual financial sector or even destroy it. DeFi (decentralized finance systems) is a traditional finance alternative where all participants have equal rights. Its prime purpose is to provide an option for classical banks.  DeFi can offer a higher income percent than Wall Street. For instance, decentralized finance systems offer 5% returns, while centralized systems do 0.5%. 

Messari analysts are almost 100% sure that by 2030 cryptocurrency and related industries will become a part of everyday life, and Web3, along with tokens, will support this system. 

DeFi ecosystem structure

DeFi decentralized finance system includes special services and financial applications on a decentralized architecture. Indeed, it is a young instrument launched in 2017. By 2019 the capitalization reached 800 million dollars, while in early 2022 summary cost of DeFi was 140 billion dollars. The market is developing rapidly, yet any businessman and investor must be aware of some features. 

DeFi is publicly available and has open-source, typically employing smart contracts. Thus, people have a completely transparent financial system for investors, without regulations and the human factor. 

Now, the DeFi sector provides many solutions for loaning and employs cryptocurrency and other digital assets as collateral. The main difference from the centralized system is the method of making a profit and the interaction of participants.

DeFi allows its clients to use digital technology without intermediaries, governments, and human factors through software and computer algorithms. Centralized analogs are regulated by country laws, banks, and other significant industry participants. 

DeFi project’s advantages and disadvantages 

Like any other system or mechanism, the DeFi sector has pros and cons. A decentralized platform can be hard to use and unfriendly since no regulation exists. DeFi is primarily an exchange analog, yet blockchain has many features. 

Main pros:

  1. There is no need to register accounts through intermediaries and verification. DeFi doesn’t require reading extended agreements and filling out forms to access the personal cabinet. 
  2. Open and transparent source code allows any client to study it and define weak points and backdoors. 
  3. Experienced developers can create applications that can become a decent source of income or support in business if promoted and marketed nicely.
  4. Any financial operation between two people is instant. No third parties are involved; hence, the transaction fees are minimal or zero.
  5. The control over the DeFi market is shared between all users equally. 
  6. DeFi platforms provide different types of access to exchange transactions, which is essential for people and companies who do not have access to the financial markets, exchanges in the usual sense, or want to remain anonymous.
  7. The smart contracts cover any DeFi sector functioning principles. There will be negligible or no human control required. The platforms are automatized at most. 
Main cons:
  1. The market is very volatile; hence beginners and inexperienced traders might find it dangerous. 
  2. Some smart contracts are vulnerable to hacker attacks. In 2021, the hackers attacked Poly Network, and the losses were about 620 million dollars. The entire platform is threatened if at least one protocol experiences critical issues. The hackers can take advantage of a single point to access the blockchain.
  3. No regulator or company will manage the operations between DeFi participants. 
  4. If a user loses the system's password, they also lose the funds. Even the best DeFi system will not provide a chance to restore the data. The support team will not help the users with this type of issue. 
  5. The states cannot track or control the funds; hence, any project is illegal. Therefore, centralized systems will do their best to prevent DeFi development. 
  6. Some new platforms in DeFi are scams. For instance, an exchange lists a token supported by an advertisement, the investors purchase it, and when the capitalization is big enough, the frauds just take the money and leave. 
Secure storage in DeFi is also with its advantages and disadvantages. The users are sure that no one will block their account, stop the transaction or require documents for financial operation. The clients transfer funds regardless of geolocation and do not experience issues with regulators. 

On the other hand, hackers and frauds are hunting their prey which may lead to losing money; and no regulator will come to help.

Hardware storage is the most secure solution for digital assets.

Hardware storage is the most secure solution for digital assets

Many blockchains charge minimal fees yet provide instant payment of any sums to any part of the world. Anchor application manages billions of dollars automatically with smart contracts. 

A classic bank requires a lot of manual work, resources, and employees to bring clients and capital. Anchor managed to get 5 billion dollars with just seven employees with automatic blockchain processes. This approach significantly reduces the cost of financial services for DeFi sector users. 

Transferring 60 thousand dollars with a $1 .4 fee in 6 seconds to any part of the world.

Transferring 60 thousand dollars with a $1 .4 fee in 6 seconds to any part of the world
Decentralized exchanges and blockchains are a new tool for investment and the development of business models. Currently, there are not enough significant players on the market. According to Dune Analytics, there were only 3.2 million unique chains in DeFi in 2022.

Best DeFi projects in 2023

There are numerous DeFi protocols worth your attention. We recommend taking a look at these TOP 10 in 2023. 
  1. Chainlink (LINK) — project’s central concept is providing value for a fee. The Aave-like protocol allows finding out the asset's price. Capitalization displays its efficiency. 
  2. Uniswap (UNI) — a pure DeFi, allowing any user to trade tokens and gain income with crypto. The platform is straightforward, which is its advantage. The native token has an excellent capitalization that proves its stability.
  3. Aave (AAVE) — offers up to 6.1% by listing tokens, while the cashback related to loan assets within the platform reaches 12%. The project can gain recognition among the masses if it reduces the entry threshold. Due to the high market return rate, this platform is considered one of the most attractive. It is recommended to consider this project for long-term investing by buying their AAVE token.
  4. Compound (COMP) — provides for loans and storage for cryptocurrency. The startup is similar to Aave but still has some different features. For instance, there is a partial payment of profits with startup tokens. The compound business model includes providing loans with its own management assets. This solution helps the investors make significantly more profit compared to traditional entities like JPMorgan. 
  5. Maker DAO (DAI) — within its development, stablecoin was released, and similar assets became a fundamental element for a new representation of all the possibilities of working in the environment of conventional money and digital assets. Stablecoins are pegged to the exchange rate of traditional funds. Depositors of DAI can get up to 3% per annum, which is not much, but the startup mechanism ensures the exchange rate's stability.
  6. Curve (CRV) is a decentralized exchange and liquidity pool. The clients can exchange stablecoins with extra-low fees, there are many trading instruments, and the platform is straightforward. Curve functions faster and is more cost-efficient than some competitors on the list.
  7. Synthetic (SNX) The platform allows earning with raw materials, conventional funds, and coins in the ERC-20 network. In the future, it may become an analog of MakerDAO.
  8. JUST (JST) is the platform of the founder of Tron (TRX). The purpose of the platform is to lend with high yields. 
  9. WBTC (Wrapped Bitcoin) is to be able to transfer Bitcoin to the Ethereum blockchain. With WBTC, Bitcoin can be applied to the DeFi sector. The blockchain is a decentralized autonomous organization (DAO) within which participants have voting rights.
  10. RenVM — Currently, the creators are working on Bitcoin, Bitcoin Cash, and Zcash. Technical features make it possible to transfer liquidity between blockchains.
These projects can help entrepreneurs do business, especially if minting their tokens. However, using decentralized exchange native tokens for investment is also acceptable since their price can grow in the future, thus making the investors more wealthy. 

DeFi for traditional employment and business

DeFi is like a closed system where cryptocurrency traders keep the activity. They deal with numerous financial operations and pay fees to liquidity pools and stakers. Lending the speculators creates the demand for cryptocurrency assets. These are essential features, yet DeFi can be employed in the real world. 

CHAI card

With the CHAI card, the blockchain processes the payments. Employing this tool for sellers will make the payments cheaper and faster than using traditional methods. This card is popular in South Korea since many popular shops by online and offline sellers have integrated this tool.

CHAI cards are commonly used in South Korea

CHAI cards are commonly used in South Korea

The sellers benefit since the transaction speed and receiving funds are much faster. Traditional methods in South Korea are time-consuming. Even taxi drivers use the card.

 CHAI integrations with payment systems with the help of blockchain

CHAI integrations with payment systems with the help of blockchain
On the technical side, it functions the following way:
  1. Terra blockchain is backed by KRT stablecoin pegged to Korean regional currency. 
  2. Transaction speed and fee are significantly lower than traditional methods since the direct payments for services and products. 
  3. The sellers benefit greatly from blockchain, thus offering cashback and discounts to all people using the cards. 
In early 2022, 5% of the country's population used the card without knowing they used blockchain. All they cared about was that it was convenient. CHAI announce launching analogs in Thailand and Indonesia. A similar blockchain mechanism also appeared in the USA. 

Lending and borrowing

Currently, lending and borrowing are the main DeFi functions. Platforms offering services can take loans without intermediaries. There are protocols where interest is paid in stablecoins pegged to a particular currency or crypto. 
  1. The compound has its native currency for lending and borrowing. Also, it supports BAT, DAI, ETH, USDC, REP, and ZRX. The interest rate on Compound is flexible and depends on market dynamics.
  2. Dharma is a P2P project employing a semi-centralized principle. The platform function on Ethereum and supports DAI, ETH, and USDC. Depending on the coin, it sets the interest rate, yet rates for financial services are fixed.
  3. Maker is a borrowing and lending company that supports ETH and DAI. To compensate the risk, the developers offer to deposit various assets ass collateral due to high market volatility. 
The most popular programs function on EOS or Ethereum, yet businesses can benefit from some other projects too. 

Asset management

The users have wallets and other tools for storing and efficiently managing the cryptocurrency and risk:
  1. Melon allows managing the capital with ETH and ERC. The product is decentralized, and the community manages the protocols.
  2. InstaDApp is a wallet on MakerDAO that allows tracking assets on blockchain in a decentralized mode. 
The DeFi industry is much like regular investments and deposits, yet without classical banks and their methods, which provide the users with quick management. 

Derivatives

The contracts involve several parties, and their cost depends on the dynamics of the original assets.

The following platforms are popular DeFi derivatives:

  1. UMA allows the creation of smart contracts. 
  2. Synthetic is a multilevel exchange that provides tools for assets, tokens, fiat currency, etc. Synths token helps to invest in shares and cryptocurrency within the Ethereum blockchain. There are no third parties involved in creating and exchanging assets. 
DeFi derivative instruments provide flexibility since smart contracts allow automatic tokenized contracts. These instruments are mainly helping to protect investors from volatility and speculations. 

Insurance

Another significant element of the cryptocurrency world is insurance. Investors use platforms that offer insurance for assets and keys, which will protect them from hacker attacks or poor management. In decentralized finance, such protocols allow the clients to transfer their holdings in pool, thus insuring them. Today, this market and industry are relatively small, yet there are a lot of prospects for growth. 

Nexus Mutual is the most popular platform since it allows the customers to buy the insurance and participate in the protocols to distribute the risks. Each user has a pool to invest Ether coins and receive NXM back. 

Possible risks in DeFi

The DeFi ecosystem still develops and integrates business and lives. Due to financial independence and no regulators in the market in 2023, the industry can show significant growth, yet it is necessary to remember the risks:
  1. There are no intermediaries in DeFi; therefore, smart contracts involve some risk. They have open-source code so that anyone can view the operations. If there are issues, the hackers find the weak points in the code and steal the funds. 
  2. No off-chain data is the main disadvantage of transactions on the blockchain. Oracles provide access to information to compensate for it, and smart contracts can use knowledge outside the blockchain to introduce changes. If the oracle provides fake data, there is a chance of losses, like Synthetix experienced a 1 billion dollar loss.
DeFi allows changing the paradigm while transparency and efficiency attract new users. Decentralized finances are the primary source of Ethereum development. The sector position is an alternative to traditional finance, yet it will take several years to make it mainstream. 

Blockchain

The global Blockchain technology market is increasing. According to Fortune Business Insights, by 2025, the industry will reach 21 billion in capitalization and a CAGR index of 38.4%. Major companies have an enormous influence on the sector by creating new solutions.

The analysis shows:

  1. In 2020,  ¼ of blockchain investment was brought to the banking and production sectors. 
  2. About 75% of the market is IT services and business industries.
Cointelegraph Consulting report says that venture investment reduced by 13% during pandemics, yet the decentralized finances attracted about 20 billion dollars and 200 funds. The experts claim that venture capital will be invested in blockchain startups in the next ten years. In contrast to classical assets, the investors already profit.

By 2030 blockchain technologies will add about 2 trillion dollars to economic growth, and the following sectors will use them the most:

  • Governance;
  • Education;
  • Health care.
DeFi and Blockchain make a new global economy, from retail to bank services.

Transaction speed for various blockchains

Transaction speed for various blockchains

Blockchain solutions will help numerous industries. Any business model involves routine, and innovative technologies will positively impact further development.

Blockchain can solve several issues for business:

  1. Launch and workflow of a network for data transfer, for instance, from a cash register in a large shop. 
  2. Trades processing after participants consensus.
  3. Frequent audit.
  4. Solving disputes if there are issues in the accounting system.
  5. Installing data source tracking system.
  6. Guarantees for protecting the reports on processed operations. 
With blockchain, companies can arrange work withing participants and companies. Blockchain is not only about digital assets and cryptocurrency; the industry is much larger. This technology changes the business principles and models. Some solutions proved efficient in finance, IT, investment, and commerce. Below you will find the most promising trends for 2023.

Logistics

Logistics, namely real-time control of the supply chain, is gaining relevance. In addition to this, information about each step is protected. With the help of blockchain technology, the customer can monitor the rules of transportation and subsequent storage of goods, such as medicines. This kind of information is not only available to government agencies but also to people who need medication.

Compatibility with AI makes it possible to understand in advance the demand for different types of goods, choosing the best ways with their delivery to the customer. IBM is one of the leaders in developing diverse solutions in this environment. They have ongoing conversations and work with major pharma companies. 

Corporate blockchains 

Corporate blockchains, which are easy to follow, have recently received a new round of development. The method is used by major participants in the financial markets: Oracle, IBM, and Walmart. In 2020, more than 14% of large companies will implement blockchain in their process and business models. In 2019, the statistics showed a transition of only 5%. The trend is continuing and growing, with more and more customers using the technology every year.

The primary consumers of the innovation are in areas such as:

  • Healthcare;
  • service-providing firms;
  • Manufactures.
The main challenges in this area focus on simplifying blockchain startup and connectivity, dealing with scaling, and transferring exchanged assets between corporate blockchains while executing transactions.

NFT

The development of this market continues, but many people are used to hearing only about the purchase or sale of pictures, objects of digital creativity. In reality, the possibilities and functionality of such technology are much more significant. NFT helps confirm ownership of movable and immovable property. The technology allows you to find a list of all the owners who had an object, and the process takes a few seconds. In 2023, we can expect NFT to be implemented in the gaming, document management, and personal identification sectors.

 Stablecoins and CBDC

Cryptocurrencies have already become an integral part of modern society, but their market is volatile, which is the main obstacle to the permanent use of assets in business. In 2022, new stablecoins with a 1:1 peg to the dollar or other currencies began to emerge. This is a fundamental challenge for the entire blockchain industry, but it is crucial to address the shortcomings of existing ones.

CBDC is a digital currency of the Central Bank, acting as a variant of the implementation of stablecoins. Regulators are studying the asset in different countries. The government does not want to deal with unstable cryptocurrencies and understands that implementation into the modern financial system is a matter of time. Creating a stable national digital asset is one method to lead the process.

It is unlikely that countries worldwide will begin to follow the path of El Salvador, which adopted Bitcoin as its primary means of payment. It is easier for many states to tighten and restrict the use of cryptocurrencies, similar to what is happening in China. The same can be said about the provision of services. The state can offer its own CBDC as the only way out.

In conclusion, the prospects for the development of DeFi and Blockchain were and still are, but you do not have to be 100% sure about the innovative technology. No one in this sphere can tell the exact development plan; it is much easier to predict trends for the next 1-2 years than for decades. 

Studying the current market situation, statistics, and analysis help conclude the most probable development path.

Blockchain, its concept, and technology have already brought the best developments, there are many changes and trends, but the effect is not over. The future of blockchain is only in its infancy, but it already takes a prominent place as a significant deviation between business and the traditional model.


How Business Can Use Blockchain and DeFi in 2023? key takeaways:
  1. Web3 — a new reality
  2. DeFi ecosystem structure
  3. DeFi project’s advantages and disadvantages 
  4. Best DeFi projects in 2023
  5. DeFi for traditional employment and business
  6. CHAI card
  7. Lending and borrowing
  8. Asset management
  9. Derivatives
  10. Insurance
  11. Possible risks in DeFi
  12. Blockchain
  13. Logistics
  14. Corporate blockchains 
  15. NFT
  16.  Stablecoins and CBDC
Merehead does professional development of Blockchain, DeFi 2023. If you have questions, contact us for a free consultation.

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Alexander Safonov
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