In a rapidly changing financial landscape, decentralized finance (DeFi) has emerged as a disruptive force, challenging the traditional banking system and reshaping how we access financial services. SMEs can leverage DeFi to help access financial services without intermediaries, thus helping to enable faster transactions, enhanced security and financial inclusion. This financial inclusivity has been largely beneficial to SMEs like mine. Because of geographical limitations, traditional financial systems tend to not allow easy cross-border transactions, but DeFi has exceeded my expectations in how it provides financial services to anyone with the internet and a phone. Moreover, it has been a game-changer and time-saver for my business growth by eliminating tedious paperwork, hefty bank fees and lengthy bank processes.
At the core of DeFi, lies blockchain technology. It acts as a digital ledger recording and verifying the transactions. Another aspect of DeFi that small business owners should know is smart contracts. These are self-executing agreements that automatically execute when predefined conditions are met. The transparency it withholds eliminates the need for third parties. Consequently, SME owners can save up their finances.
The elimination reduces costs because SMEs can interact with counterparties without manual intervention of a lawyer or bank representative thereby eliminating the hefty fees for manual intervention. Additionally, DeFi offers fewer transaction costs, reducing the costs associated with cross-border payments and financial processes.
One of the largest benefits I have seen with smart contracts is how they can help automate business processes like payment settlements, contract enforcement and supply chain management.
Automation eliminates manual errors and intermediaries, enabling seamless communication between suppliers, customers and partners. Moreover, these contracts follow security protocols, ensuring secure execution and preventing tampering.
Additionally, SMEs can drive financial growth by using initial coin offerings, flash loans, liquidity mining programs and collateralized debt positions.
Flash loans, for example, provide immediate access to capital without collateral, while liquidity mining programs offer rewards in DeFi platforms. Collateralized debt positions lock collateral and borrow stable coins, providing liquidity while retaining ownership of assets. These strategies help expand portfolios while reducing risks.
When venturing into the world of DeFi as a small business owner it's important to educate yourself on this form of finance. One essential tip I have for starting is to choose a noncustodial wallet for complete control over funds, reducing reliance on third-party custodians. Make sure to choose a reputable platform, and look to user reviews to mitigate any risks.
While choosing a platform and noncustodial wallet, I personally prioritize security like those offered by MetaMask. These types of wallets also require other security protocols like multifactor authentication, encryption and a password and a PIN each time the wallet is opened.
Secondly, compatibility with different devices is an additional factor to consider, so make sure your choice is compatible with mobile. By choosing open-source platforms, you can access public reviews and contributions to the project.
Moreover, when starting to explore this ecosystem, I recommend that you test out the waters by allocating a small portion of your capital to various investments. This will allow you to learn and gain confidence.
Lastly, engaging in the DeFi community and seeking experienced advice can provide new perspectives for your business. According to a survey report by Antier Solutions, 15% to 20% of small business owners globally have adopted DeFi for their services.
DeFi offers significant opportunities, but it's crucial to be aware of risks and take precautions. Prioritize security by implementing strong measures like two-factor authentication, securely storing private keys and being cautious of phishing attacks.
While I see great potential in adopting new technology like smart contracts, according to CNBC, almost $10 billion has been lost to DeFi scams. As well as the steps provided above, prioritize DeFi tools for projects with comprehensive audits and active communities to mitigate potential risks.
To conclude, decentralized finance has transformed the financial landscape, providing business owners with tools to optimize their financial operations with transparency and control over their funds. The evolution of this industry is demonstrated in its growth figures. You can look to adopt DeFi for its promising investments, high returns and control over digital assets.