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What is DeFi?

DeFi or decentralized finance is a complex of usable programs which provides financial operations such as borrowing loans and financial contracts in decentralized form without third party. In other words, DeFi is not a project, it is an ecosystem consisting of hundreds of projects all of which provide decentralized financial offers.

Banks and centralized financial organizations have ruled finance for centuries. If today you want to get a loan, buy or sell, pay bills or pay your taxes you have to face the bank, government or other centralized centers. All around the world, people have to trust the government to protect their national currency value. So we trust the government as a trustworthy depositary of our money. But history has shown us that centralized financial systems can betray us or they may make mistakes. DeFi has come to eliminate corruption, unintentional error and the need to trust the centralized systems by using the blockchain and the concept of decentralization.

We can also define DeFi as a movement to create an open source financial services ecosystem, operating without the need for a transparent license since everything is accessible to all without a central intermediary. In this way, the users have complete control over their assets with the ecosystem through decentralized applications (Dapps).

 

What are DeFi’s main advantages?

The traditional finance world relies on banks as third parties and also it relies on courts as referees, on the other hand none of DeFi programs need a court or referee. The programming codes define how a potential disagreement should be solved. The most important thing in DeFi is that all the users have direct access to their assets.

In DeFi utopia no one can confiscate your money or take control of your financial life or even ban your contraction with other people. Also Corruption and theft will be reduced to a minimum because everything is crystal clear for everyone.

In addition to this using DeFi can reduce the costs and provides an Indestructible financial system. Although cutting out banks is not easy it seems like we are entering a new age.

We can be optimistic about DeFi because of blockchain technology. One of the blockchain’s main benefits is that all users have access to financial efforts. Especially one who cannot use the current financial system. Since the traditional financial system is based on the beneficiary it is not usable for poor societies while DeFi being accessible to everyone to use with low fees.

 

Defi’s usages

Most of the financial world can use DeFi but today most of DeFi’s activities are in 3 parts which are explained below.

 

Borrowing and lending loans

Decentralized loan protocols are one of the most popular applications in the DeFi ecosystem. Lending and borrowing loans in decentralized centers have lots of advantages over the traditional system such as instant payment, collateral with digital assets and no need for checks. In the DeFi system money providers can benefit by putting their assets in it and others can borrow from them.

Since all the actions happen on blockchain they are reliable and very clear. Generally decentralized loaning systems reduce the risks and make lending and borrowing loans faster and cheaper to more people.

 

Monetary banking services

One of Defi’s monetary banking services is publishing stable coins, Mortgage and insurance policies. As blockchain is a growing technology it is more necessary to have stable coins which are also decentralized one.

In the case of credit services, in the traditional system, due to the existence of many intermediaries, the process of registering a mortgage and collateral is very costly and time consuming. By taking advantage of smart contracts, legal and underwriting costs are significantly reduced.

On the other hand, insurances in DeFi reduce costs for customers and reduce the risk for participants while insurances on DeFi keeps the quality at the same time.

 

Decentralized exchanges

As blockchain and DeFi grow the need for exchanges goes up. In the blockchain world you need exchanges to live in there. You can change your assets with low fees in these exchanges.

 

Smart contract and DeFi

Smart contract is the main core of DeFi so any blockchain which hosts smart contracts and hosts DeFi tools. One of the most famous blockchain for smart contracts is Ethereum which is known for it.

Some other blockchain which provide smart contracts and DeFi are Tezos, Cardano, Neo, Algorand and more.

 

 

 

 

 

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