Once known as the “financial partner of the innovation economy,” the recent run on Silicon Valley Bank (SVB) and its subsequent collapse is now causing a race for enterprises to find funding in alternative arenas.
The bank’s failure, alongside that of FTX and the 2008 financial crisis, highlights how opaque and centralized the traditional financial system is. Regulators, investors, and banks didn’t foresee or chose to ignore telltale markers that showed things weren’t right.
Decentralized finance, or DeFi, is an emerging technology for finance that uses blockchain technology, stablecoins, and peer-to-peer (P2P) transactions, which result in a consensus mechanism. A consensus mechanism is formed when a P2P network verification is used to establish consensus among nodes on the blockchain network. Each node on the network must verify that a transaction is valid before adding it to the blockchain. The consensus mechanism ensures that all nodes agree on the state of the blockchain, which prevents double-spending and other fraudulent activities.
This reduces the reliance on third-party intermediaries. Moving away from centralized financial infrastructure, such as banks, private venture capital firms, and investors, which involve a chain of entities all charging for their services, blockchain crowdfunding offers a decentralized and democratic way to raise capital.
According to Prabhat Singh, DigiFunds’ chief technology officer (CTO), the status quo of traditional capital markets “forces you to spend a lot of time and money going around seeking funding through banks and financial bodies in order to raise the capital.
“The real strength of the DigiFunds platform is the power of community. Unlike traditional capital fundraising, which comes with associated costs and funding ceilings that can disadvantage projects, DigiFunds creates a platform where investment decisions are made by people. If they like the idea, they will support it, and things will get built faster,” Prabhat adds.
Find out more about the DigiFunds platform here.