Introduction
For the internet age people, an open and global financial system was developed-Decentralized Finance (DeFi). It came out to be an alternative to the year-old traditional financial system. It was transparent and provided ownership and visibility to users’ money. It gave the masses exposure to the global market, an alternative to fiat currency, and banking facilities. DeFi products are known for their availability to anyone, and anywhere just with an internet connection.
DeFi-Future Of Finance
DeFi is a combined phrase that is used for financial products and services primarily on the Ethereum blockchain network. DeFi promotes an open-source decentralized network where payments are never denied to its users. It also eradicates any kind of human error and automizes the complete process in a more secure environment with the help of smart contracts.
The flourishing Crypto economy is an ecosystem that allows you to borrow and lend money e in a decentralized manner for a short and long term period. Crypto-savvy economies like Argentina have used DeFi to get away from crippling inflation. There are companies that have started paying wages to their employees in real time. People have started lending and borrowing money worth millions of dollars without any personal identification
A Comparison Between DeFi and Traditional Finance
| Points | Traditional Finance | Decentralized Finance |
|---|---|---|
| Ownership | Ownership is with an entity | Ownership is provided |
| Control over money | Participants have to give control of their money to an entity/institution | Participants can control the inflow and out of their money |
| Transaction speed | Slow | Fast |
| Anonymity | No | Yes |
| Nature of the market | Centralized/closed | Decentralized/open-source |
| Transparency | No | Yes |
Benefits Tha Can Be Accessed From DeFi
Send Money Worldwide
A blockchain network is designed in such a way that it creates a safe ecosystem to send and receive money. It is as simple as sending a mail. One needs to just enter the recipient’s name (example-amy.eth) or their account address and the transaction will be done. One just needs a wallet to send or receive payments.Accessibility to Stablecoins
The problem of volatility has been solved by the DeFi community. Now, cryptos are pegged to stable assets like dollars or gold. Thus, stablecoins were created which were accepted by the crypto world for different uses like earning or retail.Borrowing Money
One can borrow money from a decentralized ledger in two ways. One through the P2P option, where two parties come together and transactions are done. The second option is borrowing through a liquidity pool.Insurance
Cheaper, faster payout and transparency are the pillars of decentralized insurance. By leveraging smart contracts, the entire process of insurance is automated and is made cost-effective. One can always use decentralized insurance coverage against loss of funds.Earnings and savings with cryptos
Lending
DeFi is also a great source of earnings by lending funds to borrowers in real-time.No-loss lotteries
No-loss lotteries are a fun, easy, and innovative way to save funds.
Trading options
Exchanging tokens
Thousands of tokens and coins are available through different blockchain networks. DeFi gives you an opportunity to exchange your tokens/coins with the community, by keeping the ownership and control over your tokens intact.Advance trading
Multiple advanced trading options are available for people in the decentralized ecosystem like Limit orders, perpetual trading, margin trading, etc. Thus, you can always control your funds the way you want.
Borrowing money through a decentralized ecosystem has multiple benefits;
Privacy/ Anonymity ( Borrowing with collateral)
The identity of individuals is exposed before lending and borrowing money through traditional ways. In a decentralized ecosystem, either party does not need to reveille their identities. Borrower put some collateral and exchange gets the loan. No credit checks are done, or private information is asked.Accessibility
By leveraging a decentralized lender, one does not have access to just their choice of financial institutions but to financial institutions throughout the world.Flash Loans (Borrowing without collateral)
Here, a more experimental form of decentralized lending pattern is followed. Loans are given out to lenders without any collateral while maintaining the anonymity of lenders and borrowers. It works on a basis that the loan is given out and paid back in the same transaction. If it's not paid back then the transaction gets reverted back to lenders. Liquidity pools with high liquidity have usually held the funds. If these funds are not used at a given time, then the fund can be used by anyone else to carry a business and return the money in the given timeline.
DeFi And Smart Contracts
TDeFi leverages smart contracts and cryptocurrencies to offer decentralized services without the interference of a third party. In the case of centralized banks and financial institutions, the inflow and outflow of money are controlled by them, but not the owners of funds. These funds can not be accessed by the users easily. But in the case of DeFi, the intermediaries are replaced by smart contracts. A smart contract runs on pre-set conditions where money is sent and received automatically when the above set conditions are met. These smart contracts are immutable, and cannot be altered. Thus, smart contracts automate and increase the trustworthiness of the entire process.
Conclusion
Decentralized Finance is known for its appealing attributes and services. With the usage of smart contracts, DeFi has developed to a new ear. They have opened multiple avenues of opportunities for its users. Entering into this new arena of financial systems and exploring multiple decentralized potentials would be a great idea. DeFi-related development queries can be solved with the assistance of Nu10’s DeFi experts.
About Author
Mohit Kataria
Mohit is a tech-enthusiasts who have founded and built Manthan Research and Analytics, which got acquired by M3 and got rebranded to m360 Research. M3 is a $40bn+ Japanese Medical Information firm which is the youngest Nikkei 225 company. During his tenure there, it specialized in using cutting-edge advanced analytics techniques like NLP, unstructured data analytics, machine learning to drive actionable intelligence. He enjoys breaking new ground, building & scaling high-performing teams ground up, and creating new solutions.
