Finance plays a vital role in the world economy today. DEFI is short for decentralized finance and is an umbrella term for classic financial services processed by a decentralized platform like Blockchain or https://bitcoin-bot.app/.
According to the World Economic Forum, the interest in cryptocurrencies and decentralized finance (DeFi) is overwhelmed; the drastic increase during the pandemic is insanity. Decentralized finance aims to transform traditional forms of financing by rebuilding and reinventing services. So it brings up a series of questions to clarify, what exactly is decentralized finance? How do they work? What advantages or disadvantages and challenges do they pose?
We will discuss what may be happening in the cryptocurrency industry in particular? Then, I will tell you a little about decentralized finance and why this new financial system growing by leaps and bounds is more efficient, fair, and profitable, then the traditional financial system.
DEFI stands for decentralized finance; it is a new decentralized financial ecosystem system, global, transparent, fair, censorship-resistant without an intermediary, and easily accessible where users have complete control of their assets.
In a more technical comment, it is a series of protocols and Smart, counting that they run on the Blockchain, allowing the same use cases to eliminate the traditional financial system such as loans. The exchange of currencies and interest-earning in a decentralized automated and without any intermediary.
How is its operation? The user sends a particular crypto asset, for example, ETH or USDT, to the smart contract address of the DEFI platform. In exchange, he receives the internal tokens of the platform.
What are the advantages of its use?
- One of the most important advantages to using DEFI services is their low failure rate. What is this about? Well, it does, based on the highly secure blockchain system.
- Another advantage that eloquently limits the participation of intermediaries, reducing their number and consequently reducing the costs associated with the provision and use of financial products.
- Indeed, anyone with a smartphone with Internet access can use the solutions offered by DEFI.
- Decentralized finance applications are a cheaper solution. In turn, it can offer people with low economic resources.
- The technology it uses is inspired by the Blockchain, the digital currency Bitcoin.
DeFi wants to do baptize in the centralized finance structures that we have now; of course, in decentralized networks, without trusted third parties, it will be based and executed on intelligent or smart contracts within a blockchain in which it does reflect transparently. A written and unalterable record of each action performed,
Now, what is the DeFi of cryptocurrencies? Cryptocurrency DeFi systems provide an autonomous and decentralized choice, very attractive for investors and traders because it locks the money invested in smart contracts.
We can observe a peculiar jump in the new possibilities of money functionalities, thanks to the innovation of distributed ledger technologies. That’s right, for the first time in history; this same population is shaping a global financial system for a world population.
Everyone can participate in the governance of DeFi protocols and get a seat where the world of decentralized finance does actively created.
Conclusion
DeFi seeks to develop small traditional financial pieces with an extra degree of transparency and decentralization.
Decentralized finances are applications based on blockchain networks that, in principle, do not need intermediaries to function the rise of these financial products, which have characteristics similar to traditional services, could change the finance sector and bring opportunities and challenges.
It enables millions of unbanked people to access financial services. In 2020, DeFi saw unprecedented growth and, at that time, established a bridge between traditional finance and cryptocurrencies. Due to this, there are loan procedures, liquidity markets, decentralized exchanges (DEX), among others.
The financial model that cryptocurrencies promise is becoming more and more interesting, even considering its weak points, such as its volatility and lack of legal support.
Its most significant attribute is that the transactions that do execute are fast and secure. Of this, there is no doubt, which makes banking entities tremble since they may realize that they may disappear and replace by the Blockchain in the not too distant future.
The decentralized fact allows operations to be carried out only between issuer and receiver, leaving third parties such as central banks and banking entities out of the picture.
