DeFi
BLOCKCHAIN BASICS
DeFi or Decentralized Finance is a fast, transparent, global financial system designed for the digital age, in stark contrast to the current traditional, murky, centralized economic system controlled by outdated infrastructure and processes.
DeFi is a rapidly growing marketplace with many applications and almost unlimited potential for future development making financial services accessible to anyone with an internet connection rather than just anyone with an established identity.
A brief look at a few of the many advantages that DeFi has over traditional financial institutions:
Traditional Finance | Decentralized Finance |
|---|---|
Your money is controlled by banks | You control your money |
Money transfers can take days | Money transfers can be instant |
Restricted by geographical boundaries | Unrestricted by geographical boundaries |
Financial services linked to identity | Financial services not linked to identity |
Business Hours and Time Zones | 24/7 Global Market |
Financial instruments are man by gatekeepers | Everybody can participate |
The arrival of Bitcoin was the first time you could take control of your digital assets and efficiently send them anywhere in the world. With the security and transparency of blockchain technology at its core, people who didn't know or necessarily trust each other could do business without the need for a trusted third-party intermediary.
Unlike traditional finance, controlled by governments and banks, which can print currency, shut down mainstream institutions and devalue savings, Bitcoin is decentralized, and no single entity can change it. Like its supply and transparency, its rules are written into its very code.
Some of the best examples of DeFi services;
Cryptocurrencies make sending money around the world as easy as sending an email. Just enter your recipient's account address from your wallet, and your payment will go directly to them in minutes (most of the time).
Stablecoins solve the problem of volatility in cryptocurrencies. Their value stays pegged to another asset, usually, a popular currency like US Dollars making them a more reliable commodity to trade, lend and borrow.
There are two main ways to borrow money from decentralized providers;
- Pool-based, borrow from a pool of funds created by various lenders
- Peer-to-peer, borrow directly from a lender
Let's take a quick look at some of the advantages of borrowing from a decentralized lender.
- Anonymity
By putting up collateral that will go to the lender if you default on your loan you can borrow without credit checks or handing over private information.
- Global
You can access funds from all over the world, giving greater options and reduced rates.
- Tax-efficient
By using your crypto as collateral to borrow you can avoid the taxes involved in selling it, a win on both fronts.
Earn interest on your crypto by lending it, interest rates are usually far greater than offered by traditional banks.
Decentralized exchanges (DEXs) are open 24hrs a day, 365 days a year, meaning you can trade your crypto whenever you want.
Decentralized insurance is making insurance cheaper, settlements faster, and claims data transparent.
DeFi, it's a revolution, out with the old, in with the new! Every conceivable aspect of the finance sector is being analyzed and assessed to discover new opportunities for decentralization. With 24/7 global markets, instant transfers, and users in control of their assets, decentralized finance is bringing the benefits of blockchain to those in the know. Turn over the page to learn the basics of what a wallet is and start your journey into the cryptoverse.
Last modified 9mo ago