Decentralized Finance (DeFi) is a fast – growing sector of the cryptocurrency industry, it consists of thousand of projects on several different blockchains. Most Decentralized finance applications (Dapp) today are built on the Ethereum network. Defi is refereed to as financial application, typically using smart contracts. In this articles, I will explain what exactly is DeFi and what are the benefits?.
What is DeFi?
DeFi, also know as decentralized finance, is a new way to execute financial transactions through applications. Decentralized finance is an umbrella term for financial productions and services on public blockchain that are accessible to anyone on the internet.
With Decentralized Finance, you can do most of the things that financial institutions support – earn interest, lend, borrow, trade derivative, buy and trade assets. It aim to recreate traditional financial system, such as brokerage, banks and exchanges.
What are the benefits of Decentralized Finance (DeFi)?
The blockchain allows every transaction to be publicly visible. Anyone with an internet connection can see the full set of transactions. Traditional finance don’t grant that kind of transparency.
with DeFi, user remains in possession of the private keys compel to traditional finance where bank have your detail and control your money.
You don’t need to carryout approval from traditional finance to make any transactions. With DeFi, you can perform transaction wherever and whenever you want to transact with only an internet connection.
DeFi offers the opportunity to give access to finance service. Anyone can start using DeFi with an internet connection. You can access the market from any where and any time.
With DeFi, you can move your assets anywhere at any time without paying expensive fee and asking for permission.
What is Decentralized Finance (DeFi) used for?
- Lending and Borrowing
- Decentralized Exchanges
- No – loss lotteries
Lending and Borrowing
DeFi gave finance a new direction by enabling lending and borrowing. You lend out your funds and earn interest. Borrowers can use their funds as collateral and borrow money at a specific interest rate. Lenders receive interest payments, while borrowers gain access to capital.
DEXs are similar to their centralized exchange in some ways but significantly different in others. Decentralized exchange (DEXs) allows you trade or swap tokens with other assets whenever you want, without intermediary. Centralized exchange function as a trusted third-parties in trade, and often act as custodians by storing and securing your funds.
Staking is similar to mining, is a type of acticvity in which you are rewarded participating in transaction validation on a proof – of – stake (PoS) blockchain.
On these blockchain you lock your assets in exchange for providing security and confirming the transaction of a blockchain network.
No – loss lotteries
No – loss lotteries is he concept of using the chance to win a prize. It is a savings account where some of the interest payment are ditributed as prizes based on chances.
Participant get back their money ( you never loss for depositing) and one lucky participant wins all.
Advantages of Decentralized Finance (DeFi)
Self – Custody
By using web3 wallets like Metamask to interact to interact with permissionless financial applications. There is no central authority who can revoke your account or block your transaction. Only you have the permission of your fund and control of your personal data.
On the public blockchain, every transaction is publicly visible and verified by other users on the network. Everyone involved can see the full set of transactions. Tradition finance don’t grant that kind of transparency. DeFi is built with open source code that is available for anyone to view, audit and build.
Unlike traditional finance, you don’t need permission from any traditional financial systems or intermediary to carryout transactions. Anyone with a crypto wallet and an internet connection can access DeFi applications.