How Is Web3 Shaping The Future Of Finance?

By Suffescom Solutions

December 20, 2022

Web3 is a thriving technology and will soon be the mainstream future. It is based on decentralization, where everybody can access the data equally. Its significance is felt across multiple industries, and finance is not a separate one. Traditional banks have multiple intermediaries and are based on a centralized governing system. 

The infrastructure of the upcoming financial system will have no relevance to the third parties. To make the platform seamless, stupendous technologies like blockchain and tokens are utilized. Web3 is an open network that allows users/network members to develop secure communication. Web3 in finance has the potential to create opportunities with advanced business models that could take the financial arena to the next level.


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Contemporary Financial Systems

The existing financial system incorporates big organizations like insurance, banks, stock exchanges, brokerage firms, real estate, and many more. A financial system has to take care of many things, such as the whole funding scenario, i.e., which projects receive funding and who is funding them, prerequisites for the commercial agreements, etc.  All these things add up to make the financial systems robust.

A financial market is a vast industry. It entails regular loan negotiations between the investors and the lenders. There is an exchange of money in the form of credit, cash, and equity in the marketplace. Additionally, some financial instruments called “derivatives” are swapped in the commercial market, which takes place under supply-demand regulations. 

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Role Of Web3 In Shaping The Future Of Finance

Web3 is known for providing decentralization; that’s why conventional banking systems have taken a back seat. This distributed system has led to a notable switch in the financial ecosystem. The banks are now replaced by several entities that are illustrated as under;

Digital Wallets

These apps help store huge funds, perform transactions, and monitor previous payment dealings. Users can have access to all these things on their mobile devices. Every relevant information corresponding to the finances is kept safe in a digital wallet.

These wallets can be integrated into popular payment apps such as Alipay, PayPal, PayMe, Tencent QQ, etc. Their main role is to provide financial services to the people living in remote areas where the conventional banking system is impossible. Digital wallets contribute to dominating digital assets. 

Its significance is felt in financial inclusion, which helps both individuals and businesses to offer opportunities for affordable financial services. It involves imparting seamless business operations like moneylending, loans, buying/selling insurance products, and many more. 


DeFi (Decentralized Finance)

DeFi, known as decentralized finance, washes out the role of intermediaries and builds transparency via peer-to-peer networks. It utilizes advanced hardware/software components, security protocols, connecting devices, and equipment. A distributed ledger of the financial database is available to all parts of the world.

The data is taken from the users and scrutinized via a consensus mechanism. The users do not need to travel to any physical location of the bank; they just sit at their places and access the financial services. There is greater control over money by the people via personal wallets.

dApps(Decentralized Applications)

DApps run on a dedicated blockchain network. The transaction takes place between the network of the computers rather than on the sole server. They are free from any supremacy and are free from interference. The best part is the user's privacy and flexibility.

The added benefit is that no user is prohibited from sending the transactions. The calculations made are extremely genuine and authentic. The absence of any governing authority leads to accuracy and smart decision-making. All this is possible via the execution of smart contracts that result in smart contract analysis and no leakage of users' details. 

dApps provides the users with maintaining privacy and confidentiality. There is no need to follow the registration process as it makes things complex and time wastage. Access to the decentralized applications takes place through the ethereum login credentials. Things have become uncomplicated with the utilization of dApps.

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 DEX (Decentralized Exchange)

It is a peer-to-peer platform for trading cryptocurrencies. The special part is that the users can trade straightly without any third party. There is absolutely no need for a third party, as every transaction takes place from their wallet, and that too without following any KYC norms. DeFi is the root cause behind the rising popularity of decentralized entities. The DEX provides liquidity pools (asset-centered), which help the users generate massive incomes through trading fees.

The customers build direct communication with the blockchain protocols for implementing the trade. Complete ownership lies within the users, which is possible due to the non-custodial framework. There is a similarity between DeFi and DEX that depends upon the self-adjusting codes known as “smart contracts” executing over the blockchain network.

To be precise, DeFi and DEX are becoming profitable solutions for the startups and small/medium scale enterprises existing in the FinTech world. Both of them are pioneers of easily accessible financial elements. They have drastically shifted the way conventional systems used to operate. This opts for cheaper credits, and convenient borrowing/lending activities, thereby changing the outlook.

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Advantages Of Web3 In Finance

Web3 has remodeled present-day financial systems by offering personalization and implementing effective marketing techniques. All the modern-day tools and technologies help users take control of the internet. This way, the user's preference is better understood, and necessary decisions are taken without wasting much time. Web3 in finance underpins the DeFi projects developed on the ethereum blockchain network.

With the help of the latest blockchain networks, web3 is gradually setting up a more appealing platform engulfed in providing customers with modern-day financial solutions. 

Looking at the current scenario, the following are the advantages of web3 in finance;


Wider Access

Web3 in finance will help individuals to have broader access to people across the globe. Unlike traditional systems, it connects all sections of people who were finding it difficult to be a part of the financial system and contribute towards the financial activities without risk. Web3 finance has made the lending and borrowing process much easier.

Improved Efficiency

There has been a tremendous shift seen in the financial system. Regarding remittance fees, cross-border payments, credit card exchange rates, etc., these financial dealings take less time in decentralized systems. The other issues about microtransactions hampered fund transfers, massive brokerage fees, transparency, and security are solved due to web3 in finance. The introduction of web3 finance has tried to do away with such incapabilities and prompted people to adopt the latest financial methodologies.

Interoperability

This enables the customer to make transactions outside the network. It signifies the transference of the money to different accounts /providers while paying from a different provider. It also includes disbursing or withdrawing the funds/capital using diverse providers. These things used to take an ample amount of time in the ideal banking systems.

One had to pay a huge amount while performing the exchange. The movement of funds among other financial institutions takes more than three business days. On the contrary, web3 in finance has made space for interoperability in the DeFi environment. Including interoperability in diverse payment set-ups reduces the workload, aids time management, and eliminates monetary outlays.

Transparency

The standard financial model does not provide transparency. There are always certain elements where there is ambiguity. The lack of transparency has motivated people to go for the web3-enabled finance system, where there are appropriate details available to the customers to make precise financial decisions. 

For instance, there are times when customers need help understanding the rate of interest on the loans. With the lucidity of the web3 in finance, the fintech services have made rapid progress by showing consumers to ascertain accurate loan rates. When everything falls into place, then the inefficiencies can be avoided.

No Single Points Of Failure

The significant perk of web3 in finance is that it mitigates the single points of failure that causes huge distraction in financial operations. Every financial record is recorded on the distributed blockchain network. So when any node becomes dysfunctional, the entire blockchain is not interrupted. This makes the entire transaction process steady, and the execution of the DeFi protocols takes place in a decentralized fashion. 

No Manipulation

The web3 based financial transactions do not require third parties. In addition to that, there is no need to distribute records. Both of them are major contributors to corruption. Web3 in finance makes use of distributed ledgers that cannot be altered. Inadvertently, they make financial record systems more secure and stable. Decentralization helps users in making decisions that are best suited for them. Ultimately, the influence of the certain corrupted groups in influencing decisions is restricted.

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Bottom Line !!

Web3 in finance is known for providing the best infrastructure for the financial services that are losing grip presently. The enforcement of top-notch technologies like artificial intelligence has made an unparalleled transformation in the financial realm. The non-stop innovations taking place under web3 are going to make remarkable changes across various branches of the financial world.

In times when decentralization is the talk of the town, most certainly, DeFi is going to be the future of the economic industry. It will offer opportunities to create superb business models to aid the financial system. There are essential steps taken that are going to gain popularity in the next few years. Most importantly, digital wallets, the latest blockchain upgrades, and the modernized DeFi protocols are all set to create ripples in the financial sector.

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