Decentralized Finance 101: What you should know

In a world full of private monetary institutions, more people are looking for alternative ways to utilize financial services and make transactions. One of these is decentralized finance or DeFi which provides transparent and pseudonymous transactions between users from different parts of the world. With DeFi, people now have the opportunity to conduct transactions without the need for middlemen.

If you want to know more about DeFi, read along right here at BTC Post!

What is Decentralized Finance?

Decentralized Finance (DeFi) includes all financial products available on a decentralized blockchain network. These are accessible to anyone without the need for intermediaries such as banks or brokerages that can block payments and restrict access. To make it simple, DeFi is where buyers and sellers can easily connect and create transactions without a firm or institution conducting the transaction.

What makes DeFi fully accessible to everyone is its lack of requirements. To use DeFi systems, people don’t need to provide documents such as government-issued IDs often required by centralized systems like banks and brokerage accounts.

DeFi vs traditional finance

DeFi is considered an alternative to traditional finance systems due to its open, transparent and secure features. Although traditional finance is also regarded as secured, it doesn’t offer accessibility the way DeFi does.

DeFi is powered by software developed on top of a public blockchain. Because of this public nature, DeFi financial goods and services become available for everyone, developing an open financial system wherein anyone can be a contributor to improve the network.

Moreover, with DeFi, you’re in control of your finances, meaning there’s no red tape or bureaucratic requirements that can restrict you from sending or withdrawing your funds. You can also easily transfer funds in a matter of minutes compared to traditional financial systems that can take days before the transaction is complete.

Additionally, anyone can see transaction activity because it is pseudonymous and transparent. This means that anyone can examine a product’s data and see how it operates.

Meanwhile, when it comes to traditional finance, your funds are stored by private companies so you’re essentially trusting them to manage your money. Transactions can also take days because it is manually processed by workers at the bank or financial institutions.

Moreover, to begin using their financial services, you have to apply first and provide personal information to create an account. With your identity provided to the bank, any transactions you make will be linked to your account. Lastly, you can’t view loan history or a list of managed assets of traditional finance.

What DeFi can offer you

DeFi has a wide range of features that you can benefit from such as access to stablecoins, insurance, lending and more. That’s why a lot of people are starting to recognize the importance of DeFi. Discover what DeFi can offer when you learn about its features below:

Send money around the world

As a system that’s built on top of a blockchain, DeFi is designed to send funds around the world safely and securely in just a few minutes. As long as you have a stable WiFi connection, it’s easy to transfer funds to anyone regardless of your location. However, just make sure you have a wallet to send or receive money so it’ll go directly to the receiver’s wallet.

Access to stablecoins

Most new investors have doubts about using cryptocurrencies due to their volatility. The good thing is that DeFi provides people with access to stablecoins. Stablecoins are currencies linked to a non-crypto asset that keep its price stable. They can be pegged to various assets such as dollars or euros. Some of the most popular stablecoins in the market are Tether (USDT), USD Coin (USDC), Binance USD (BUSD) and a lot more!

Lending and Borrowing

Lending and borrowing protocols are some of the most popular types of applications offered by the DeFi system because they connect borrowers and lenders in the network. People can borrow money from decentralized providers in two ways. The first one is by borrowing directly from a specific lender in a peer-to-peer arrangement. The second one is pool-based lending where lenders contribute funds to a pool where people can borrow from.

Moreover, lending and borrowing markets on DeFi provide instant transaction settlement, security through cryptographic verification methods and affordable, faster and accessible borrowing and lending services.

Insurance

Insurance in DeFi helps users acquire coverage and protect their holdings since a lot of DeFi these days are still at risk of bugs and breaches. With insurance, blockchains can eliminate the need for middlemen and disperse the risk among a number of participants. One example of Insurance is the Smart Contract Cover that protects users against unauthorized use of smart contract code.

Permissionless

DeFi eliminates the ability to oversee transactions usually done by private monetary institutions. This allows one transaction history to be shared among the people who have access to the blockchain.

Transparency

Since DeFi is decentralized, it also provides greater transparency for all users. The network’s data is publicly available for review since all activities that occur are shared with everyone. Additionally, the cryptographic protocols in the blockchain make sure that data is only recorded after its legitimacy has been verified.

Savings

A lot of DeFi lending platforms these days allow users to manage their savings while earning interests in those assets at the same time. When you put your crypto assets on lending platforms, you begin earning interest. This is where ‘yield farming’ comes in. It is described as the growing trend of users transferring their funds around to different lending platforms to increase their profits.

Discover more of DeFi today!

DeFi provides users with a new way to borrow, lend and create other transactions with people across the globe. It’s only a matter of time before the majority of the population of different countries recognize the importance of DeFi and completely change their ways of utilizing financial services. Now that you know more about DeFi, discover how it can benefit you in your everyday life!