At a time when the power of the internet is challenging centralized institutions, decentralization has positioned itself as a promising avenue. Powered by blockchain technology, decentralization is gradually transforming and overtaking existing solutions, including, but not limited to, the traditional financial system.
For instance, decentralized finance (DeFi) has single-handedly revolutionized the traditional finance (TradFi) model by offering nearly identical community-driven financial services that are transparent, inclusive, and rewarding. DeFi platforms registered enormous growth over the last few years, primarily due to their unique community-driven financial models where no centralized authorities or intermediaries drive the activity.
The majority of the credit for the recent success of DeFi applications and protocols goes to the communities that are backing individual projects. Although still young, the DeFi communities scattered across various blockchain ecosystems have laid the foundation for a more inclusive future that can financially benefit all participating stakeholders.
The decision-making process (governance) of most DeFi platforms – from the average gas fee to the product roadmap – is usually decentralized. In most cases, the inception of a DeFi platform is often driven by a single individual or a small group. But as the community around the project grows and the project gains momentum, the core developer or the group gradually transfers the ownership and governing rights to the community members that use the platform.
Communities exist in the TradFi ecosystem too. But unlike in DeFi, TradFi communities don’t have any say in anything related to the product or service they are using. In the case of DeFi, most projects choose to create individual DAO (decentralized autonomous organization) for their respective communities with preset rules, regulations, and incentives for all members.
Since DeFi is community-driven and not owned by any single authority, it is more inclusive than existing TradFi services. Unlike TradFi, DeFi doesn’t discriminate against or limit its users. Instead, it relies on the power of the underlying network and its users to eliminate “the middleman,” restoring full control and ownership to the users while enabling them to tap into several passive revenue streams.
Unlocking More Options For DeFi Communities
Because of the open nature of the DeFi ecosystem, anyone can participate in it. Currently, there are hundreds of community-managed DeFi applications and protocols, some of which have billions in total value locked (TVL). Essentially, the rise of community-driven DeFi services has diminished the hegemony of centralized financial institutions while giving people, especially the unbanked and the under-banked, an opportunity to finally take control of their finances.
For instance, take the Balancer protocol, an automated portfolio manager and liquidity provider that turns the concept of an index fund on its head. Index funds have been sold as TradFi products for decades, but they are less inclusive, and centralized asset managers control users’ funds. Balancer Lab developed an open-source platform for asset management and decentralized exchange to address this reality.
Balancer is based on several ideals, namely that liquidity pools (index funds) should be customizable and programmable, and, by extension, anyone can create and contribute to existing pools of assets. Simultaneously, it rests on the notion that investors should earn reasonable returns for contributing capital. Built on Ethereum, Balancer’s protocol offers fully programmable and customizable liquidity pools as well as automated and decentralized market makers.
By enabling users to enter and maintain a portfolio without being forced into a loss-making position, Balancer offers a novel approach to liquidity. For example, with Uniswap, users must deposit 50% of the desired asset and 50% in ETH. However, with Balancer, users can deposit any amount of a supported asset as they please and even adjust allocations to fit their needs.
Now, the recently rolled out Balancer V2 upgrade has added several new features designed to address security, gas and capital efficiency, and flexibility. Beethoven X, the next-generation AMM protocol on Fantom Opera, harnesses the power of Balancer V2 to offer traders the option to execute cost-efficient trades by pooling together crowdsourced liquidity from a range of investor portfolios.
As a one-stop decentralized investment platform, Beethoven X leverages the best available DeFi protocols via Balancer V2 to offer users a large swathe of decentralized investment strategies, benefiting investors, traders, and other DeFi protocols. Investors can create unique crypto index funds tailored to meet their desired asset allocation metrics and collect fees from traders who rebalance their funds using arbitrage opportunities. Additionally, DeFi protocols can use the Beethoven X platform to launch tokens while capturing market volatility with minimal impermanent loss.
With Beethoven X, users can access various liquidity pools, like Beethoven X’s native pools and some community-funded pools. But what stands out is Beethoven X’s “Weighted Investment Pools,” which transforms ordinary, fund manager-run index funds into community-driven and managed funds. By replacing traditional fund managers compensated for rebalancing portfolios, users collect fees from traders, who can then take advantage of arbitrage opportunities to rebalance the underlying portfolios.
That said, many of the features and solutions supported by DeFi draw inspiration from existing TradFi services. As the underlying technology evolves and more DeFi communities emerge, each will contribute to transitioning into a fully transparent, inclusive, and open financial ecosystem. With individual communities of users who actually use the product participating in ongoing development, every new upgrade is destined to deliver better outcomes for users.
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