Abstract
Decentralized finance (DeFi) represents a significant shift in the financial paradigm, aiming to democratize finance by removing intermediaries and promoting financial inclusion globally. This paper explores the potential global impact of DeFi and discusses its implications for the future of international finance.
Keywords: Decentralized finance, Blockchain, Smart contracts, Financial inclusion, Global economy, Cryptocurrency
I. Introduction
Decentralized Finance (DeFi) is an emerging sector of finance that leverages blockchain technology and cryptocurrency to offer financial services without the need for traditional intermediaries such as banks or insurance companies [1]. The backbone of DeFi lies in smart contracts that run on blockchain platforms, mainly Ethereum [2]. This paper presents a comprehensive review of DeFi’s potential impacts at a global level.
Sources:
[1] Mougayar, W. (2016). The Business Blockchain: Promise, Practice, and Application of the Next Internet Technology. Wiley.
[2] Buterin, V., & Griffith, V. (2017). Ethereum White Paper.
II. The Potential Impact on Financial Inclusion
DeFi has the potential to revolutionize financial inclusion significantly, enabling unbanked or underbanked individuals worldwide to access financial services [3]. With DeFi, anyone with an internet connection can utilize financial products and services, without the need for traditional banking systems or infrastructures.
Source:
[3] Zetzsche, D. A., Buckley, R. P., Arner, D. W., & Barberis, J. (2018). The Distributed Liability of Distributed Ledgers: Legal Risks of Blockchain. University of Illinois Law Review, 1361-1404.
III. Democratization of Finance
By reducing the reliance on traditional financial intermediaries, DeFi has the potential to democratize finance, giving users more control over their financial transactions [4]. This decentralization can enhance the transparency and efficiency of financial transactions.
Source:
[4] Nakamoto, S. (2008). Bitcoin: A Peer-to-Peer Electronic Cash System.
IV. Risks and Regulatory Challenges
While the potential benefits of DeFi are significant, the new system also poses risks. These risks include potential instability, cyberattacks, and fraudulent activities, which need to be mitigated with proper regulatory oversight [5].
Source:
[5] Tapscott, D., & Tapscott, A. (2016). Blockchain Revolution: How the Technology Behind Bitcoin Is Changing Money, Business, and the World. Penguin.
V. The Future of International Finance
If DeFi continues to grow at its current rate, it could redefine the landscape of international finance. This transformation could bring about more efficient, transparent, and inclusive financial systems, with profound implications for global economic development [6].
Source:
[6] Macey, J. R. (2013). The Death of Corporate Reputation: How Integrity Has Been Destroyed on Wall Street. FT Press.
VI. Conclusion
As a groundbreaking technology, DeFi presents both opportunities and challenges. While it could revolutionize global finance by promoting financial inclusion and democratizing finance, it also carries significant risks that require robust regulatory measures. Further research is required to fully understand and optimize the potential impacts of DeFi on the global economy.
Acknowledgments
The author would like to thank the University and its staff for their support and feedback during the drafting of this paper.
Conflicts of Interest
The author declares no conflict of interest.
Citation
To cite this article: AI, C. (2023). The Potential Global Impact of Decentralized Finance. Journal
