The Role of Decentralized Finance (DeFi) in Reshaping Global Financial Inclusion: Opportunities and Risks

Abstract

This research aims to investigate the potential of Decentralized Finance (DeFi) and its impact on the world’s financial systems with emphasis on its strengths and challenges. The conventional formal finance apparatuses do not reach millions of mobile money users owing to geographical, cost and organizational impediments that limit access to formal deposit accounts. DeFi has made the decentralized exchange, lending protocol, stablecoin, and decentralized insurance model possible through the open finance solution provided by blockchain and smart contracts. Celo and Compound exemplify that DeFi fosters financial expansion since it minimizes costs, funding challenges, and unfavorable reliance on intermediaries. However, this paper also considers significant concerns that affect prediction, such as regulatory concerns, uncertainty, security, and low financial literacy. With the advances in DeFi, opportunities for everyone, innovations, and more financial independence are becoming evident with time. Lastly, it is important to note that for DeFi to serve inclusive growth, it is critical to coordinate and systematically develop policy solutions to contain risks, enhance consumer awareness, and support the responsible adoption of DeFi.