What is DeFi? DeFi, also known as Decentralized Finance, uses Blockchain and cryptocurrency technology to manage transactions. DeFi aims to establish finance as peer-to-peer that can provide the full spectrum of financial from everyday banking, loans, complicated relationships, and assets trading.
Today’s Centralized Finance
Today almost every aspect of trading, banking, and lending are managed by a centralized financial system. It is not peer to peer system. There is always a third-party assistant or medium that completes the process. The customers must deal with a middle man to access lending, loans, and trading.
In general, an authority sets the rules of a centralized trade system and can not exceed that rule. As a result, there are some paths through that consumers can have access to their capital directly. No one can pass mediators like Banks, lenders, and exchanges; as a result, they earn a percentage, and we have to pay to play.
What Is DeFi?
All you want to know now is ‘What is DeFi’? DeFi is decentralized finance that works as same as banks, lenders, and exchanges can do. You can invest, earn a profit, borrow, lend, insurance, and many more. But it’s faster and doesn’t need any paper or middleman work. DeFi is peer-to-peer and open to all.
Why Is DeFi Importance?
DeFi takes the assumption of cryptocurrency, especially Bitcoin, the digital currency, and makes it an alternative for Bankers, Lender, and Exchanges but with zero cost involved, i.e., the cast of banker salaries, offices, and trading floor. It has the potential to create a free and fair, transparent, and easily accessible financial market with the internet.
What Is the Benefit Of DeFi?
As we know what is DeFi, now here are the benefits of DeFi as follows;
- You don’t need to open an account; you have to create or download a digital wallet and get access.
- You can transfer your assets anywhere without permission, without waiting for confirmation, and without paying high fees.
- You must not provide personal information, name, email, or address.
- Everyone can see the transaction publically without any restrictions.
- Rewards and interest rates are updated quickly, not more than every 15sec, which is fast.
How Does DeFi Works?
Users mainly use dapps, also called decentralized applications. There is no need to open an account or another formal procedure. Just log in and start transferring assets with these apps.
Here are some ways people are engaging with Dapps
- Trading: People trade peer-to-peer cryptocurrency and other stocks without any breakage in the market.
- Lending: Invest or lend out your Crypto and earn interest and commission on it every minute.
- Saving For the Future: Put some cryptos on saving or stacking accounts and earn a considerable interest in it.
- Buying Derivative: Bet or trade on different exchanges and Stock exchanges to earn with correct predictions.
DeFi Runs On Blockchain
Cryptocurrency and Blockchain are the core technologies in which Decentralized Finance runs.
When you make transactions on Dapps, your transaction details and all information are stored and managed by a public ledger called Blockchain, which is accessible by anyone all over the world. When we say Blockchain is recorded, every person has an encrypted personal or unique transaction ID code.
Do you still confuse about what is DeFi? When says Blockchain is decentralized, we know there is no middle man working. Transactions are verified by Blockchain directly.
This is all that. What is DeFi? And does DeFi makes our life easy and quick? But with all these benefits, there are some downsides of DeFi. By knowing that, you can understand that actually what is DeFi?
Down Side Of DeFi
- With fluctuating rates, Highly volatile Crypto can get expensive trading with fluctuating trading fees.
- You must maintain your tax record because it can vary from region to region.
- Depending on Dapps, which one you use and how you can use it can experience high volatility. But after all, it’s a new technology.