What is Decentralized Finance (DeFi)?
Decentralized Finance (DeFi) is a fast – growing sector of the cryptocurrency industry, it consists of thousands of projects on several different blockchains.
Defi is referred to as a financial application, typically using smart contracts. The Ethereum network hosts the majority of Decentralized Financial Applications (Dapps), which are currently built. In this article, I’ll explain what Decentralized Finance is, and its benefits?.
What is Decentralized Finance (DeFi)?
Decentralized finance is also known as DeFi. It’s a new way for financial transactions to be executed through apps.
Decentralized finance is an umbrella term for financial productions and services on public blockchain that are accessible to anyone on the internet. You can use Decentralized Finance to do all the things financial institutions support: earn interest, lend money, borrow money, trade derivatives, buy and sell assets, and so on. It aims to recreate traditional financial systems, such as brokerage, banks and exchanges.
What are the benefits of Decentralized Finance (DeFi)?
The blockchain makes every transaction publicly visible. Anyone with an internet connection can see the full set of transactions.
Traditional finance doesn’t grant that kind of transparency.
DeFi gives users the ability to keep their private keys. This is a great alternative to traditional finance that allows you to control your money and have banks access your data.
Transactions can be made without traditional finance approval. With DeFi, you can perform transactions wherever and whenever you want to transact with only an internet connection.
DeFi offers the opportunity to give access to finance services. Anyone can start using DeFi with an internet connection. You can access the market from anywhere and any time. Flexibility With DeFi, you can move your assets anywhere at any time without paying an 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 provided finance with a new direction, allowing lending and borrowing. You can lend out your funds to 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.
While DEXs can be similar to centralized exchanges in certain ways, they are vastly different from how they function.
Decentralized exchange (DEXs) allows you to trade or swap tokens with other assets whenever you want, without intermediary.
Centralized exchange functions as a trusted third-party in trade, and often acts as custodians by storing and securing your funds.
Staking is similar to mining, is a type of activity 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 the concept of using the chance to win a prize. This account is used to save money. Some of the interest payments are awarded as prizes according to chance.
Participants get back their money ( you never lose for depositing) and one lucky participant wins all.
Advantages of Decentralized Finance (DeFi)
Self – Custody
You can interact with permissionless financial apps by using web3 wallets, such as Metamask.. Your account cannot be cancelled or your transactions stopped by a central authority. You are the only person who can grant permission to your fund, and you have complete control over your personal information.
Every transaction on the public blockchain is visible to the public and can be verified by other users. All parties can view the entire transaction set. This transparency is not available in traditional finance. DeFi uses open source code, which is freely available for everyone to see, audit, and build.
Transactions can be done without permission from traditional financial systems and intermediaries. Anyone with a crypto wallet and an internet connection can access DeFi applications.
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