DeFi or decentralized finance is one of the fastest-growing and hyped areas of cryptocurrency. DeFi refers to financial services via smart contracts, a transparent system that requires no intermediaries, like banks etc. DeFi is the global, open, and transparent alternative to all our financial needs today. DeFi platforms are made as dapps or Decentralized Applications that enable them with the benefits of decentralization and making them more secure, faster, efficient, and often more affordable to use.
DeFi started gaining vivid popularity by the mid of 2019 and it is in boom now. Some of the popular DeFi use cases are,
- Stable Currency – Cryptocurrencies often witness sharper price fluctuations, which make them less reliable and investable. DeFi offers a cryptocurrency that is tied to a physical valuable outside the digital world. It could be dollars, gold, or anything else, just to stabilize the value of the currency in a classical way.
- Lending Platforms – Lending platforms are needed to be very trustworthy and secure as it involves not only the lending values but collaterals too. DeFi builds lending platforms that are more secure and trustworthy and involve concerned parties only that too without the intermediaries, be it banks or middlemen that means the benefit of both the lender and lendee.
- Lego Money – Most of the DeFi applications are niche apps now and do not relate to each other much. But DeFi applications behave like LEGOs as they are the perfect fit for each other and can be managed easily altogether. This is going to make DeFi a part of our daily lives really soon.
DeFi applications are different from their classical counterparts as,
- Minimal Human Interaction – These applications work on a set of predefined rules called smart contracts. Once a contract is deployed the application can function on its own with minimal human interaction.
- Transparency – The code is transparent and available on the blockchain for anyone to audit. This builds trust with the users.
- Globally Accessible – Dapps are built to be global and accessible from anywhere. Whether you are in Texas or Tanzania you can access the application and use it.
- Permissionless – Dapps are designed in a way that they are permissionless to use. There are no gatekeepers to keep a watch on users, no lengthy forms to be a user of the platform. Users can directly interact with contracts via their crypto wallets.
- Flexible User Interface – Skins for applications can be used as the platforms are mainly focussing on the functionality and backend of the applications users can get interfaces of their choices via third party providers or can make their own.
- Interoperable – These applications are compatible with each other and can be used in combinations as discussed above.
Despite being more secure, DeFi still has security concerns being a budding technology. Decentralized Finance is the future of finances but is very risky to invest in now unless you are a master in these techs or a great risk-taker.
“DeFi has brought a lot of energy back to the crypto markets and we’re starting to see the ICO era excitement for projects again.” – Evan Kuhn, Co-Founder, Coinberry.
DeFi has started blooming and has the potential to replace traditional financial systems.
Learn more about DeFi and it’s advantages in our learning center.