The world of finance is rapidly evolving, and decentralized finance (DeFi) protocols are at the forefront of this transformation. From centralized banking systems to decentralized blockchain networks, DeFi is changing the way we think about and interact with money.
DeFi protocols are creating a new financial landscape, where individuals have greater control over their assets and can transact with one another directly, without the need for intermediaries.
In this article, we’ll explore how DeFi protocols are changing the future of finance. We will also talk about the difficulties and challenges, such as scams, hacks and frauds, that DeFi, like RING Financial, faces.
Understanding the Traditional Finance System
To understand the significance of DeFi protocols, it’s important to first understand the traditional finance system. In the traditional finance system, banks and financial institutions act as intermediaries between individuals and financial services. For example, if you want to take out a loan, you would have to go through a bank. The bank would then assess your creditworthiness and decide whether to approve your loan application. If approved, the bank would charge you interest on the loan, which would be paid back over a set period of time.
This centralized system has several disadvantages. Firstly, it creates a dependence on intermediaries, who can charge high fees for their services. Secondly, it restricts access to financial services, as not everyone has access to a bank account or can meet the strict requirements set by financial institutions. Finally, traditional finance systems are often slow and bureaucratic, making it difficult to access funds quickly when you need them. These restrictions are the main reason why DeFi’s like RING Financial came into being.
What is DeFi?
DeFi, or decentralized finance, is a new financial system that is built on blockchain technology. DeFi protocols use smart contracts to create decentralized applications (dApps) that can be used to transact with one another directly, without intermediaries. These dApps are built on top of blockchain networks like Ethereum, which provide the infrastructure for decentralized finance.
Unlike traditional finance systems, DeFi protocols are open to anyone with an internet connection, regardless of their location or financial status. This makes DeFi protocols more inclusive and accessible than traditional finance systems. For example, anyone could use the DeFi RING Financial platform to conduct financial transactions at reduced costs. But as you know, when a system is open to everyone, you are much more exposed to scams.
Current DeFi Market Trends
DeFi protocols have seen significant growth in recent years, with the total value locked (TVL) in DeFi protocols reaching over $100 billion in 2022. This growth has been driven by several factors, including the increasing demand for decentralized financial services, the growth of the cryptocurrency market, and the increasing adoption of blockchain technology.
However, there are also several risks and challenges associated with DeFi protocols, including security risks like scams, regulatory challenges, and scalability issues.
Benefits of Decentralized Finance
There are several benefits to using DeFi protocols. Firstly, DeFi protocols offer greater control over your assets. With traditional finance systems, your assets are held by intermediaries like banks, who can restrict your access to your funds. With DeFi protocols, you have full control over your assets, and can transact with one another directly. In the case of RING Financial, for example, you are entitled to an informative dashboard on which you can follow everything related to your RING Financial Token.
Secondly, DeFi protocols offer greater transparency. All transactions on DeFi protocols are recorded on the blockchain, which is a public ledger. This means that all transactions are visible to anyone on the network, and cannot be altered or deleted. This creates a high level of transparency and reduces the risk of fraud. It is thanks to this ability that we were able to obtain information on the transactions carried out by the hacker who took advantage of a flaw in RING Financial’s smart contract to commit a scam.
Finally, DeFi protocols offer greater efficiency. Transactions on DeFi protocols are processed quickly and cheaply, as there are no intermediaries involved. This makes DeFi protocols ideal for micropayments and cross-border transactions.
Scam Risks and Challenges of DeFi
One of the main risks associated with DeFi protocols is security. DeFi protocols are built on top of blockchain networks, which are not immune to hacking, scams and cyberattacks. For example, in December 2021, RING Financial, which was one of the best-known DeFi’s at the time of the event, suffered a hack that resulted in its failure.
A hacker found a flaw in RING Financial’s smart contract and exploited it to commit scams. The scam took place in less than 5 minutes. It was the function that handled the RING Financial token part that had not inherited the “onlyOwner” protection function that limited access to modify the code to administrators. The hacker modified the code to obtain a large number of RING Financial tokens. Ultimately, the project was abandoned as a result of this fraud from the hacker, and noders lost faith in this experimental project
Finally, scalability is a challenge for DeFi protocols. As more users join DeFi protocols, the demand for processing power increases, which can lead to slow transaction times and high fees. This is a challenge that DeFi protocols will need to overcome if they are to achieve mainstream adoption.
In this article, we took the example of Ring Financial because the project got into the spotlight in late 2021 and the challenges it faced are quite common in Defi, but plenty of other protocols could have been taken as examples.
