DeFi

Remember the good old days when you had to split the bill with friends using cash?

That was a common sight in Singapore just a couple of years ago but so much has changed since then. Today, most of us go about our day without the need for our wallets. From digital banking to stocks investing, everything can be easily done with a few taps on our handheld devices.

Over the years, decentralised finance (DeFi), a blockchain-based technology, has transformed many lives in miraculous ways. Individuals who were unable to apply for loans from traditional financial institutions can now make micro loans through decentralised finance systems.

Businesses with no real capital are now empowered to finance their projects using digital assets. Small-time traders and artists can also easily sell and trade artworks using digital currencies that are becoming increasingly valued in the real world. And the list goes on.

Whether we like it or not, DeFi has been and will continue to disrupt the fintech industry for years to come. Even as blockchain becomes increasingly useful for both individuals and businesses, few of us actually understand it enough to take enough advantage of it.

However, even as someone who has no interest in dabbling with digital assets, taking the effort to understand this new technology may improve the quality of your life and career in unexpected ways.

Lucky for you, I’m here to help you out. Read on to learn more about the untapped potential of DeFi systems outside of the crypto world.

The DeFi space is a notoriously unfriendly place for non-tech people like us to navigate. I often find it a pity that sophisticated systems built by talented software engineers get lost in translation when it reaches the average consumer. While the technology may be impressive, what matters at the end of the day is whether mass adoption by the public is possible. If we don’t even understand it, how can we be a part of this technology renaissance?

Fortunately, this problem has an easy solution. As a start, let’s dissect some of the financial jargon into not-so-intimidating terms together.

Blockchain

Blockchain is a database that records information in a way that makes it impossible for anyone to cheat the system. While traditional financial systems have someone in charge who can make edits to transactions without anyone else knowing, this cannot be done on the blockchain as every change gets tracked and recorded in the system. The unique feature of blockchain is that it is decentralised, meaning that no one is in charge of it, and it is run collectively by the people who use it.

DeFi

DeFi is a blockchain-based form of finance that does not rely on central financial intermediaries such as brokerages, exchanges or banks to offer traditional financial instruments, and instead utilises smart contracts on blockchains. Smart contracts are self-executing contracts that enable users to buy and sell amongst one another without the need for a central authority.

Digital asset-backed loans

These are loans between users in which one user uses digital assets as collateral to borrow money (called borrower), and another user lends their digital assets (called lender). Digital assets could be cryptocurrencies and tokens that are accepted by lending platforms as collaterals.

Now that we are armed with some basic knowledge about DeFi and its current implementations, let’s dive deeper.

The problem with DeFi

For the longest time, DeFi systems have only been used within the crypto community. Businesses that do not possess digital assets were unable to make use of DeFi systems to finance their projects.

As a result, SMEs that do not have the capital or assets frequently lose out to big companies who own real assets which can be posted as collateral for monetary loans from banks and investment funds.

Also read: How the decentralised finance movement is gaining momentum in Asia

One of the biggest issues with DeFi is that the products and technologies that crypto companies develop do not actually have real world implications. Because DeFi systems trade exclusively in digital assets, there currently exists an unbridgeable abyss between the crypto community and the rest of the world.

In the end, just as traditional businesses cannot harness the potential of DeFi, the crypto community is also limited in their ability to make impactful investments on real-world projects.

Thankfully, many global companies are warming up to the idea of accepting cryptocurrency as a legitimate mode of payment in recent years. For example, PayPal just rolled out a new “Checkout with Crypto” function that allows users to convert their Bitcoin, Ethereum, Litecoin, or Bitcoin Cash to US dollars, which PayPal then uses to pay merchants.

As a major digital wallet with 377 million active users, PayPal’s move towards digital currencies is an important one that enables the crypto community to easily make real world transactions.

ShuttleOne: DeFi in the Real World

Closer to home, ShuttleOne, a DeFi blockchain company that offers blockchain-based finance services to real businesses, recently financed the first batch of electric vehicles (EVs) to replace SMRT’s entire taxi fleet for commercial use in Singapore. The financing of this first batch of EVs makes ShuttleOne the first decentralised finance company to fund real businesses using blockchain technology.

The ShuttleOne network harnesses the power of AI and blockchain to offer real asset-based loans to businesses using capital from smart contracts innovation. Their proprietary blockchain technology that is licensed by Global eTrade Services (a subsidiary of Crimsonlogic), CALISTA Finance powered by ShuttleOne, is able to tokenise real-world trade assets to store in the chain and can be easily verified by parties within the supply chain logistics platform.

This provides full transparency of the entire supply chain and credit scoring for financing services. Last year, ShuttleOne serviced more than 4,000 merchants and managed over US$3,500,000 of trade financing – a solid proof that DeFi companies are more than capable of bridging the gap between DeFi solutions and real businesses.

Can DeFi do more?

The successful partnership between Singapore government-linked companies and ShuttleOne marks a milestone for both Singapore and the blockchain finance industry as one of the biggest and most progressive use cases of decentralised finance service in real-world projects. As part of the Singapore Green Plan 2030, Singapore has set aside S$30 million for EV-related initiatives over the next five years.

Through 2020, Insurtech investment in Singapore quadrupled from S$35million to S$125 million, signalling tremendous potential for insurance innovation in the space. This presents an excellent opportunity for more DeFi blockchain companies to provide critical support and innovative solutions for government and business initiatives in the near future.

With the continuous adoption of 5G technology and smart city solutions, DeFi is poised to play bigger roles in financing real world solutions in the years to come. Today, as one of the world’s leading FinTech hubs and a global gateway to Asia, Singapore is well positioned to lead the charge towards the next technology revolution through blockchain innovation.

DeFi can definitely do more. At its infancy, DeFi is already making a positive impact on real world businesses and projects. We are now sitting on the crux of a digital revolution with blockchain technology paving the way, and I believe it is only a matter of time before the world realises the untapped potential of DeFi.

ShuttleOne was the first, but it definitely won’t be the last.

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