DeFi (Decentralized Finance) — next revolution?
One of the most repetitive terms in web3 is DeFi. Sounds like a mysterious word with complex meaning.
DeFi was and is a huge trend in blockchain use case, allowing to decentralized financial services like loans, deposits, etc.
Agenda:
- Intro,
- Definition,
- Purpose,
- Advantages,
- Disadvantages,
- Conclusion.
Definition
DeFi stands for decentralized finance and can be considered as financial infrastructure build on blockchain, using cryptocurrencies.
DeFi is growing constantly very quickly, but still has a long way to overcome traditional banking system which is measured in multi-trillion dollars industry. However, mass adoption of crypto can speed up this process.
Purpose
Generally, DeFi allows to use traditional banking system solutions in decentralized way. It means that, all services like loans, transfers, etc. are available 24/7.
Crypto Transfers can be proceeded all around the world, so there are no strange limitations and delays. It is a huge advantage which defines decentralized world.
As cryptocurrencies are totally decentralized and require no middlemen, everyone can have a wallet and use it. There is no institution like bank, which can stop creating an account or block assets.
Platforms
Before mentioning example platforms, it is necessary to remind that cryptocurrencies are not equal to DeFi (dapps). Dapps are built on top of the blockchain, cryptocurrencies are native assets for settlements.
Practically, DeFi trend started with building dapps on ethereum blockchain, which was well understood and commonly used. However, ethereum generates a. lot of fees, that’s why different solutions came to the market.
List of platforms:
- Uniswap,
- Compound,
- PancakeSwap,
- MakerDao,
Advantages:
- Transparency,
Blockchain is recognized as transparent network which is fully decentralized.
- Innovative,
As there are no central institutions which can regulate some aspects of crypto flow, DeFi is constantly growing with huge efficiency.
- Lower fees,
Comparing to traditional financial system, some of offers have less additional costs, for example cross country transfers. In DeFi it is easy and cheap.
- Easy to access,
DeFi is open to every user with crypto wallet.
- Wide variety of product types,
DeFi offers a lot of different products, like: loans, deposits, transfers, swapping, contracts, insurances, etc.
Disadvantages:
- unrealistic investment returns,
Some platforms claims, that they give huge returns in investment, it can cause crash of some coins/projects.
- high volatility,
Big fluctuations of cryptocurrencies worth can have impact on DeFi system. Traditional banks using FIAT currencies do not have this problem.
- hard to use software,
Some platforms require wide knowledge and specific software to use in participating in the project.
Conclusion
DeFi is definitely worth of interesting and learning. It can scale traditional financial system and gives more freedom.
However there can be scams based on unbelievable returns from investment. Further improvements should make it more secure.
