Decentralized Finance or DeFi emerged as a powerful use case of blockchain technology in recent years. These tools resemble traditional financial securities like loans, bonds, and mortgages, but are completely decentralized and based on smart contracts.
Flash loans, high-interest savings accounts, and decentralized crypto exchanges have been the most popular DeFi products so far. However, there’s plenty of room for more innovation and developers seem to be adding new DeFi tools every year.
Here are some of the latest and most creative DeFi tools on the market.
Public finance
Lack of transparency and wastage in public finances is a global issue. Most citizens have little insight into how their tax dollars are spent by governments on local or national levels. An individual citizen or household has even less control over how these funds are deployed.
A new concept called Liquid Democracy seeks to change that. Tools like the OpsChain Public Finance Manager (PFM) developed by Ernst & Young could provide a Web3 solution to taxation and public finances. Essentially, blockchain-based tokens could be used to crowdsource funds from the public and a decentralized autonomous organization (DAO) implemented to manage its use.
MiamiCoin is a good early example of this. The city’s lawmakers intend to use the funds to develop infrastructure, recruiting startups, and host events to bolster the local economy. If the project is successful, there could be other city coins in the future.
Community-driven accelerator funds
Traditional accelerates support nascent startups with funding derived from either corporations or government agencies. A new project called Colony wants to replicate this model in the Avalanche ecosystem. Avalanche is the 10th largest crypto platform in the world and is widely considered an Ethereum rival. The Colony project would crowdsource funds to help new and emerging products on the network, accelerating their progress in a decentralized way. The project has secured funding directly from the Avalanche Foundation. This could serve as the most convenient startup funding model for blockchain projects that are either misunderstood or underappreciated by traditional venture capitalists.
Litigation finance
Geneva-based Liti Capital is bringing a niche asset class to average investors: litigation finance. Financing litigation is a popular strategy for private equity firms and wealthy investors. The returns are stable and higher than traditional fixed income securities while cash flows are detached from the regular business cycle. LitiCapital wants to lower the barriers to entry for this asset class via a crypto token and DAO.
Crowdfunding litigation and distributing payouts from lawsuits is a uniquely innovative use case for blockchain technology.
Takeaway
The disruption of traditional financial securities and services continues. DeFi products like flash loans and yield farming are quickly becoming popular, but new cases like litigation finance and decentralized public financing are gaining steam as well. A decentralized economy could be closer than we imagine.
