Demystifying Onchain Finance

Introduction

I have seen a lot of people associate blockchain with just finance, but then, Blockchain technology is more than just finance. It is a full technology on its own–a core component of web 3.0. Now, Onchain Finance is a network of financial processes that uses the Blockchain Technology to operate instead of the normal traditional methods of performing financial processes.

What exactly does this mean, and why is it important? Let’s break it down and explore how onchain finance is shaping the future of the world’s financial industry.

What is Onchain Finance?

Onchain Finance refers to financial activities—like payments, lending, or asset management—that happen entirely on a blockchain. Unlike traditional financial systems, where centralized intermediaries control transactions, onchain finance uses decentralized systems to automate and secure financial transactions.

For example, consider lending. In traditional finance, banks act as the centralized intermediaries. In onchain finance, smart contracts replace banks, enabling peer-to-peer or P2P lending without middlemen.

Key Components of Onchain Finance

1. Smart Contracts

These are self-executing agreements programmed on blockchain networks. They automatically enforce terms, reducing the need for manual oversight or legal intermediaries. For instance, a smart contract can automatically release funds once certain preset conditions are met. They are like actuators that are triggered when their sensors detect certain met criteria.

2. Decentralized Applications (dApps)

These are blockchain-based tools designed for various financial functions, like trading, lending, or payments. Unlike centralized apps, dApps operate on decentralized networks, offering users greater transparency and control over their data and assets, unlike traditional financial systems where the centralized systems have large control over one’s assets.

3. Tokenization

Tokenization converts real-world assets like real estate into digital tokens on a blockchain. These tokens can be easily traded or managed, opening access to markets previously limited by geographical or economic barriers. Imagine owning and selling a piece of landed property overseas, or selling bits of it to various individuals, each having a legal right to their own share? That’s what tokenization brings.

Benefits of Onchain Finance

1. Security and Transparency

Blockchain technology ensures that all transactions are immutable and traceable. This reduces fraud risks and builds trust among users.

2. Lower Costs

By eliminating intermediaries, Onchain Finance reduces fees, making financial services more affordable as it moves from wallet to wallet.

3. Global Accessibility

With just internet access, anyone can partake in financial transactions with Onchain Finance systems from anywhere in the world.

4. Faster Transactions

Traditional banking systems often take days to settle transactions. Onchain finance offers near-instant settlements, even for cross-border payments due to the elimination of unnecessary intermediaries.

Real-World Applications of Onchain Finance

• Development: Platforms like Onboard help developers ship products that operate onchain.

• DeFi Platforms: Protocols like Aave and Compound allow users to lend or borrow assets without intermediaries.

• Stablecoins: Cryptocurrencies like USDC provide a stable medium of exchange for onchain transactions.

• Cross-Border Payments: Platforms like Ripple enable instant, low-cost international payments.

Challenges in Adopting Onchain Finance

1. Regulatory Uncertainty

Different countries have varying rules around blockchain and cryptocurrencies, making compliance complex especially with crossborder.

2. Scalability Issues

Current blockchain networks can struggle with high transaction volumes, leading to delays or increased costs.

3. User Education

Many people lack the knowledge to safely use onchain finance tools, limiting widespread adoption.

4. High Set Up

Setting up an Onchain Finance platform can be very difficult to do as the process involved in building a financial platform isn’t a small feat, this is where platforms like Onboard comes into the picture, helping to simplify the building process.

The Future of Onchain Finance

The future of Onchain Finance is growing steadily as its underlying technology; Blockchain Technology is experiencing widespread adoption. It is likely to see Governments embracing Onchain Finance and even adopting a standard currency for it.

There is also a possibility for more assets to be tokenized and traded onchain.

These advancements will make financial services more inclusive, efficient, and innovative.

Conclusion

Onchain finance is redefining how we think about and interact with money. By eliminating intermediaries, reducing costs, and increasing transparency, it offers a new way forward for the financial industry. As the world becomes more interconnected, understanding and leveraging onchain finance will be essential for individuals, businesses, and even governments.