The Know- what DeFi is
Defi has been trending for a while now. The term has created a buzz in the financial market within its two years of launch. The results have been glorious enough to attract the investors and shareholders. The system based on decentralization of the financial market by eliminating the intermediaries is accessible to every individual who wants to avail any kind of financial services. Let’s learn more about it in the following blog.
Decentralized Finance Protocol is that area in cryptocurrency that is gaining the highest amount of attention. This mainly refers to financial services or smart contracts, which are automated enforceable agreements that don't need intermediaries or mediators like banks or other financial institutions or a lawyer or online blockchain technology instead.
DeFi is also sometimes known as 'lego money' because you can stack dApps to maximize the returns. Though many of today's dApps are niche, future applications could significantly impact everyone's day-to-day lives.
What is DeFi?
DeFi is an acronym used for “Decentralized Finance”. The term covers several applications in cryptocurrency or blockchain that are organized to disorder the centralized finance system and its intermediaries. Decentralized Finance has a significant role to play in blockchain, the technology behind digital bitcoin. The main advantage of it is, a single central source doesn't control it. Centralized systems can make the process slow and obstruct direct control over the money. DeFi is much clearer because it expands the use of blockchain from simple to more complex payment options.
Bitcoin is not as same as other digital payment options like PayPal and Visa, as these kinds of transactions do not involve any middlemen. Cutting out intermediaries from almost all primary types of commerce is the most crucial advantage of DeFi.
Rise of DeFi
Many of the DeFi applications are built on top of 'Ethereum,' the world's second-largest cryptocurrency platform. It is the next step towards disruptive financial technology, which began 11yrs ago with bitcoin. These decentralized applications are entirely peer to peer, without any company or other institution providing the platform.
Bitcoin today has successfully changed how financial systems work. Bitcoin offered a cheap, economical, swift, easy, and heavily safe way of money transfer based on innovative data maintaining technology.
DeFi is a phenomenon in which decentralized networks' power is upgraded to alter the traditional financial way of transferring and saving money into one of the distributed data age.
Decentralized Finance has jumped up to a place of prominence in the last couple of years. The concept started in the very beginning during the first days of the cryptocurrency when many platforms were initiated to bring various purposes to blockchain or cryptocurrency. One of these services also involves d decentralized banks and financial firms. Today, people have the option of obtaining loans, creating savings accounts, and trade or exchange quickly and safely using DeFi services.
DeFi seems to be one of the best things to happen to people in general from the financial perspective. However, every investment or transaction comes with a certain amount of risks. Whatever the risk factor may be, the most crucial point of interest is that DeFi offers enormous benefits to the public.
There are the most popular types of DeFi applications:
Decentralized exchanges (DEXs): Exchanges on online platforms can help exchange any currency, whether they are U.S. dollars or bitcoins. DEXs are a different type of money exchange, so that it can connect users directly for the dealing of cryptocurrency without any intermediary or middleman.
Stablecoins: It is a type of cryptocurrency tied to an important asset, not a cryptocurrency (e.g., dollar or euro). It is just used to stabilize the price.
Lending Platforms: These are smart contracts used to replace intermediaries such as banks, to exchange money easily.
Wrapped bitcoins (WBTC): This is a process to use bitcoins directly in Ethereum's DeFi system. WBTCs allow users to earn interest on the bitcoin that is lent out via decentralized systems.
What is the DeFi offering?
Decentralized Finance is offering users control of their assets. Though nowadays, banks and fintech firms promise to provide full power to the users, we trust them more to manage our funds. But DeFi can give you complete control of the assets because it can ensure total control because of the decentralization and blockchain technology as it terminates interference of intermediaries.
DeFi has a future, too, because many financial apps developers are willing to expand themselves through decentralized systems of money exchange. As all protocols are open source, it allows anyone to build new financial products on top of them. Decentralized Finance opens a new scope in the financial market as developers across the globe can join forces with each other to create unique, better products that can bring faster innovation and safer networks.
Everyone can store, trade, exchange, and invest their assets more safely in blockchain and earn higher results than the traditional financial system. Since there are no middlemen taking care of these assets, the users have complete control over the investments.
Core Benefits of DeFi
The core benefit of Decentralized Finance is easy financial access to those isolated from the current digital scenario of the financial system. Another potential advantage is the modular framework it is built upon - interoperable DeFi applications on public blockchains that possess the potential to develop new products, services and even financial markets.
Decentralized Finance apps do not need any intermediaries or mediators. The Decentralized Finance code specifies every possible problem or dispute with easy methods, and the users can also have full control over the funds at all times. This reduces the costs of giving and using these products and allows for a more comfortable and safer financial system.
Another core benefit of DeFi apps is that they can be built in advance, so making another framework for cryptocurrency in DeFi seems less complicated and secure.
Another benefit of such an open ecosystem like Decentralized Finance is the ease of access for every individual who usually wouldn't have been able to get access to digital financial services. Because the traditional financial system relies on the middlemen, the services are typically not present from locations with low-income families. However, with DeFi, the costs are much lesser, and low-income individuals can also benefit from a broader range of financial services.
Now this question may pop up, why the sudden craze of Decentralized Finance. One final and most important reason for the sudden surge of people investing in DeFi tokens is to avoid being left out of the immense explosive growth. Many tickets are worth nothing or close to nothing in practical terms, so there's a chance to see a lot of exhilaration.
In case we like it or not, or we choose it or not, we all are gradually moving towards a new financial system that is more liberalized and decentralized. It can minimize the risks of digital money and spread potential benefits as widely as possible.