An Introduction to DeFi

Mar 15, 2022 by Kelsey Banerjee
Decentralized finance (DeFi) payments are on the rise.

Over the past four years, spending on blockchain infrastructure has increased 7x, going from $1 billion in 2018 to $6.6 billion in 2021. And this investment into the DeFi space will only grow, being projected to reach over $19 billion by 2024.

While there are many applications for DeFi, accelerating and securing payments is one of the top use cases. But is integrating DeFi into your business right for you? That’s what we’re here to help you figure out.

But before we talk about the benefits — and there are a lot — let's slow down, define precisely what DeFi is, and what it means for AR professionals.

What is decentralized finance (DeFi)?

Put simply, decentralized finance uses open-source technology to reduce financial institutions' and banks' control over transactions. DeFi payments eliminate costly processing fees by reducing intermediaries, putting the power solely in the hands of the merchant and buyer. As a result, DeFi payments are also significantly faster. Instead of waiting days to settle a single transaction, you can receive and reconcile your money in minutes.

And that money doesn't have to be cryptocurrency. Since crypto users rely on blockchain for decentralized finance, you might think that the DeFi space is only for cryptocurrency transactions. The good news is, that’s not the case.

You can use DeFi technology to securely receive and verify payments in any currency, not just crypto. When combined with the even more specific Ethereum blockchain structure, which uses smart contracts, it's possible to automate many other manual tasks in the payment process.

How can DeFi improve my payments process?

Consider, for a moment, how credit cards work. First, you charge a customer, and that charge is transferred to the issuing bank, who then passes it on the credit card network. Next, this network requests the payment from the bank, and once approved, the funds get transferred to your business account. Finally, this entire back-and-forth is charged to you in the form of a credit card processing fee.

A DeFi application provides a platform to significantly reduce this exchange. But that isn't the only benefit. DeFi technology can also:

  • Increase security — Decentralized finance hinges on data being spread out across different servers through the blockchain network, which makes it difficult to hack. A DeFi payment platform provides an additional layer of security.
  • Speed up settlements — Payments completed through DeFi platforms are radically faster than traditional methods. Transactions can be settled in hours or even minutes, which frees up cash flow bottlenecks.
  • Clear records — Every transaction is automatically logged and preserved in a "block.” These blocks cannot be changed, meaning that it is impossible to edit once a transaction is completed. Another transaction can occur — such as a refund — in case of a mistake. This structure lends itself to compliance and makes managing a clear audit trail easier.
  • Scalability — Another benefit of the blockchain network as an essential DeFi technology is its ability to scale. Since every transaction is executed automatically, without the requirement for third parties, the payments platform can scale alongside business growth without being penalized for your development.

What DeFi looks like for B2B payments

Now that we’ve gone over what DeFi is and its benefits comes the most important part: What would DeFi look like for your B2B payments?

Offering a fully encrypted and permissionless infrastructure, DeFi allows you to perform near-instantaneous transactions without a bank or financial institution looming in the background, acting as an intermediary, and taking a chunk of your revenue through processing fees. Utilizing DeFi for your business transactions increases your cash flow by decreasing risk (thank you, Blockchain technology!), hassle, costs, and time to cash.

DeFi allows an organization to leverage secure, scalable, and automatic payments, often with their current ERP infrastructure. This means a low learning curve for AR professionals and a streamlined workflow.

Think Venmo, but for B2B payments. And that's exactly what DeFi can look like for your AR department.