DeFi is a financial infrastructure comprised of lending protocols, platforms, and collateralized stablecoins. It’s supposed to replace centuries-old centralized finance.
DeFi —What Is The Benefit?
The main benefit is that you can directly own your funds, providing you the same options as traditional money. No matter the cryptocurrency’s price, volatility, or liquidity, a decentralized platform controls your funds. Decentralization allows financial experimentation. Before blockchain, there was no mechanism to create or lend money directly between peers. DeFi delivers internet users financial services.
Centralized vs. Decentralized
Centralized finance works the same way as always: you trust a bank with your money, and they track your debt. DeFi allows everyone to hold funds or lend without limits. Instead of trusting exchanges or custodial wallets with your money, choose a non-custodial wallet or trustless lending service.
How Does DeFi Function?
Smart contracts, cryptocurrency, and blockchains enable DeFi. A smart contract is computer code that performs an operation when criteria are satisfied, such as transferring money when an asset is locked up as collateral on-chain. They provide a decentralized, unchangeable public ledger where transactions can be recorded without a central authority. DeFi enables new financial products that never existed previously because they require an intermediary. When all circumstances are met, the code operates automatically, so you can borrow money without worrying about repayment.
Why Decentralize Finance?
DeFi services are open to everyone. Therefore, it’s easier to test global financial solutions. You can download an app from the App Store and use it without KYC/AML requirements or living in a wealthy country.
DeFi has limitless potential to change money management. DeFi can assist unbanked and underbanked populations in breaking down barriers and obtain financial sovereignty because everyone can utilize it. It lets consumers control their data and digital security without relying on centralized sources. Smart contracts also allow cryptocurrency transactions between various nations. Online purchases no longer require a bank transfer from a foreign friend and high costs. Finally, DeFi lets people construct their financial products open to everyone, which can directly impact society.