Equidei    Contributor   Exp: 1 Year   Enthusiast

Industry 4.0: How will DeFi drive the Fourth Industrial Revolution?

Ever since the invention of computers, dramatic technological changes have been taking place, as if right out of a science-fiction – from smart robots like Sophie to self-driving cars to 3D printing of prosthetic legs! This change is nothing but the rapid arrival of the Fourth Industrial Revolution, a convergence of the digital, physical, and biological spheres.

It promises a transformation in every aspect of our lives, affecting not only individuals, but entire industries and economies, and even redefining the concept of plain-old humankind. 

Understanding Industry 4.0

What is Industry 4.0? (aka Fourth Industrial Era / 4IR)


The First Industrial Revolution (1780 onwards): The invention of the steam engine replaced dependency on animal & human labour with machinery including the spinning jenny, coke smelting, puddling, and rolling processes for making the iron, etc.   


The Second Industrial Revolution (1870 onwards): Electricity took the center stage and led to installations of mass production machinery and expansive networks of railways & the telegraph, accelerated research and development, technological inventions, etc. 


The Third Industrial Revolution (the 1970s onwards): Also known as Digital Revolution took off with electronics, super & personal computers, and new platforms of mass communications via computers and processors. The large-scale popularity of computers and spike of interest in Artificial intelligence & automation began eliminating manual resources in the industry and is eventually paving the way for Fourth Industrial Revolution.


The Fourth Industrial Revolution (Industry 4.0 / 4IR): Industry 4.0 will be a fusion of technologies merging the physical, digital, and biological spheres. It is said to be an advent of ‘cyber-physical systems’ involving entirely new capabilities for people and machines.


The Industry 4.0 Trifecta


Big data, AI, and Blockchain are regarded as the trifecta of the Fourth Industrial Revolution. Emerging from this trifecta are in fact technologies of today like Robotics, genome sequencing, autonomous vehicles, nanotech, synthetic biology, cloning, biotech, quantum computing, Artificial Intelligence & Machine Learning, the Internet of Things, 3D printing, decentralized governance, and DeFi.

Role of Blockchain in Industry 4.0

Besides its mediating role in linking AI with IoT, Blockchain is pushing the wave of Industry 4.0 through advancing networks & accessibility and challenging traditional perceptions of banking and finance. It has the capability to fuel organizations towards scalable solutions in global trade – from the supply chain, legal, healthcare, academics, and transportation,  to finance

Decentralized Finance (DeFi) as a facilitator for Industry 4.0


DeFi (Decentralized Finance) is an ecosystem making financial products and services available without intermediaries. In its nascent stage, Defi is trying to eliminate the shortcomings of traditional finance and in the long run, it might become the monetary standard in Industry 4.0.


Whether it’s making a purchase in Metaverse, performing a transaction on an eCommerce website, making a donation in crypto, availing of quick and secure loans, or securely storing capital, DeFi applications are supposedly laying the foundation stones for how money shall work in Industry 4.0.

What does DeFi offer to the Fourth Industrial Revolution?


Let us understand how DeFi serves trust-minimized, non-custodial, open, composable, and programmable financial services. 


Firstly, let’s get to know the transformations that combat the two major challenges thrown at DeFi – accessible interface and interoperability. 


Stablecoins drive accessibility in DeFi by enabling easy cross-border remittances, cryptocurrency trading 24*7, and minimizing volatility. 


Additionally, an accessible interface is available even for trading and investing. Trading enthusiasts can route towards Decentralised Exchanges like  Curve (CRV), Uniswap (UNI), PancakeSwap (CAKE), etc to avoid surrendering custody of assets. There are also Exchange Aggregators such as 1inch and Matcha that send trade orders to the exchange offering the best price. Investing in DeFi gets more interesting with Aggregators that mediate activities across the above categories like Yield farming services; optimizing returns from liquidity and collateral provision. 


As learned from traditional finance, Interoperability is a must for large-scale transactions. This is becoming possible in the highly fragmented blockchain space with innovations like Inter Blockchain Communication Protocol by Cosmos and Parachain messaging by Polkadot. The best part is the independent functioning, as against traditional finance where exhausting statutory requirements are involved.


Secondly, Credit is the backbone of financial ecosystems. Cross-border credits, secured loans against real-world assets, financing manufacturing firms to offering lending platforms are easier & faster to avail on DeFi. Moreover, given the volatile nature of cryptocurrencies, financial services like insurance will soon establish on DeFi. This will be a major boost for businesses, especially SMEs juggling between working capital management and quick credit needs. 


How DeFi will facilitate Industry 4.0 and what are the benefits?


Large enterprises seek efficiency in transaction services, SMEs require access to credit for continued business operation and survival. According to a 2020 report, the shortfall in financing for SMEs is $5 trillion. So far, traditional finance has not been able to fill this gap.


DeFi will be a gamechanger in this regard – thanks to fewer barriers, lower costs, quicker turnaround time, access to cheaper credit, and easy lending and borrowing activities 


This also opens up ways to conduct independent banking for all types of industry sectors – and provides them with services of short-term liquidity and cash management, trade finance, payments, escrow services, and custody of assets. The added feature of a smart contracts-driven process, interoperability, and tokenomics, overlook the need for a central authority to participate in a deal. 


Some benefits and examples are :


  • Enables faster transactions: No centralized authority can control or monitor the transactions, which makes the transaction seamless and fast, without any roadblocks of checks and approvals. 


  • Provides flexibility: Being open-source gives companies the freedom to create a robust payment system depending on specific geographies or demographics. This helps to implement automation and provide the best customer experience at every transaction touchpoint. For instance, smart contracts will provide better privacy to stakeholders’ data.


  • Offers Transparency: As against the traditional fiat system, DeFi offers true transparency. With DeFi in place, only the given blockchain network has the power to authorize a transaction, unlike a central authority does in traditional finance. You have your own non-custodial wallet to manage your funds. Also, transaction onboarding and market-based risk assessments are much easier to scale.


  • Cost-saving: Whether it’s a startup, MSME, SMEs, or an MNC, DeFi promises cost-effectiveness and functionalities like easier lending and borrowing with robust cryptographic verification mechanisms and smart contract integration. 


  • Tokenization: Tokenization takes the encryption process one step further and distributes the encrypted data nodes on a decentralized network. Tokenization also help brings real-world assets to DeFi.


So far, we have established that DeFi is here to stay with us. As we head into the fourth industrial revolution, it is imperative that DeFi will blow up to facilitate Industry 4.0 because finance is the backbone of every industry sector.


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