defi a free financial market that doesnt sleep

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DeFi or decentralized finance  is a term that refers to a large variety of financial products and services. It is an emerging technology that employs smart contracts to conduct financial transactions using cryptocurrencies and blockchain technology (To read more about “The Blockchain and Its Impressive Use Cases”, click here). In fact, DeFi is built to revolutionize the financial industry by diminishing the control of banks and other centralized institutions.

What Does It Do?

Decentralized finance can conduct transactions without the involvement of a third party because it uses self-executing smart contracts. DeFi  runs on a public blockchain. Thus, anyone has access to the transaction history, including the transferred assets and fees, the codes of the smart contract, the status of the system, etc. 

Furthermore, decentralized finance lets participants pay in cryptocurrency to obtain most services that traditional banks offer, such as lending, borrowing, earning interest, buying, trading assets, and more. For instance, Uniswap is a decentralized exchange (DEX) that offers asset trading in a decentralized fashion as opposed to a centralized exchange (CEX). In addition, Compound is a decentralized peer-to-peer (P2P) lending platform where users can borrow and earn interests.

What Are Its Advantages ?

At its core, Decentralized finance was established to give the power to the people and democratize finance. Unlike traditional banks, you don’t need to fill out an application or open an account. Here are some advantages of DeFi:

  • Open: anyone with an internet connection and a digital wallet has access to the DeFi market.
  • Fast: operations happen almost instantly.
  • Anonymous: users don’t have to present any know-your-costumer document, email, or phone number… (yet)
  • Financial freedom: users have more control over their money and where to spend it.
  • Sleepless: DeFi operates 24/7.
  • A variety of services: users can benefit from the same services of traditional financial institutions (usually powered by a token).
  •  Cheap fees: the elimination of third party involvement cuts down fees by 50%.
  • Transparency: all parties involved in the operation can see the history of the transaction.
  • High returns.

In short, anyone can use DeFi at any time anywhere.

Despite DeFi being usable from anywhere at any time, regulations around this topic remain unclear. For instance in the European Union a bill was recently proposed to ban all DeFi applications. This is due to the threat DeFi poses to the banking systems throughout the world. 

As you can see in the chart above, the interest in DeFi services has rapidly grown since 2017, however as the aforementioned regulations hit, Terra Luna crashed, and large crypto hedge-funds went bankrupt, the total assets locked behind DeFi decreased drastically (as shown below).

Despite the dropping TVL, it is still considered to be a rapidly growing market, this is thanks to it being a revolutionary technology to the crypto ecosystem.

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Do your own research (DYOR) and Resh out!

It is particularly important to watch out for Ponzi schemes and shitcoins in DeFi projects.

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