Decentralized Finance (DeFi) – A simple Guide for Beginners

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decentralized finance DeFiIn recent days, the term “DeFi”is more popular in the crypto space. We know that the finance industry is a well-known industry that grows every second. But traditional finance seems to be harder. you may know bitcoin and ethereum as digital currencies. But they act as the huge open-source network. Also, it allows anyone to create financial activity enabled applications without the involvement of a centralized organization.  The motivation behind the DeFi is simple and you can get more knowledge about DeFi in this blog. Moreover, 1.7 billion who presently lack financial services. Existing finance infrastructure has been instrumental in generating good wealth. Come on, let us see what is DeFi in a detailed manner. 

Let us dive into a deep discussion.  

What is DeFi?

DeFi is commonly a short form of Decentralized Finance. DeFi refers to an ecosystem of financial-based applications that are entirely developed using blockchain networks. It is open finance that includes all the digital assets, protocols, peer to peer applications, smart contracts, and the list goes on. The primary aim of DeFi is to create a permissionless and transparent financial-based ecosystem. It will be available to everyone and can operate without the central authority. Thus, it is decentralized so users can have control over their assets. Also, they can easily interact through the peer to peer networks or Dapps.

Decentralized finance (DeFi) offers a global with open financial services. Such as insurance, loans, savings, and trading. Also, provides the accessibility to everyone across the globe who has the internet facility on their smartphones, tab, and desktop.  DeFi is completely enabled by the peer to peer technologies and built on the ethereum blockchain. From lending and borrowing platforms to stablecoins and tokenized Bitcoin. 

The Decentralized finance ecosystem has successfully launched an expansive network of integrated protocols and financial instruments. Currently,  over $7 billion worth of value locked in ethereum smart contracts. Decentralized finance(DeFi) has emerged as the most active sector in the blockchain space. Also,  considered in a wide range of use cases for individuals, developers, and institutions. So ethereum blockchain is the major choice of all developers for generating DeFi applications with given flexibility.

What is the DeFi offering?

The main concept behind the DeFi is offering the control of your assets on your hands. So the DeFi ecosystem provides full control over your funds through the process of decentralization and blockchain networks. Here many blockchain developers use open-source for developing secured financial applications with trading options through peer to peer exchanges. This open-source protocol allows the developers to develop new innovative products with a highly secured network.

DeFi offering aims to provide a blockchain-based peer to peer financial system. So everyone can invest, trade, and store their own assets with full control over their own assets. Also, it eliminates the third party or intermediate to handle your assets and investments. Thus, DeFi helps to make a healthier financial system across the world using the powerful blockchain-based decentralized networks.

Highlights of DeFi Dapps

Now, let us see some specialties of DeFi decentralized apps.

  • Permissionless

Here anyone can develop and use DeFi Dapps. It replaces all the lengthy forms to easily accessible smart contracts. Also, allows users to easily interact with their cryptocurrency wallets.

  • Flexible user experience

The smart contracts of DeFi are similar to the open-source API. so users can change the interface as per their wish.

  • Not controlled by any individual

The operations of DeFi are not controlled by any intermediate or centralized organizations. Instead, rules and conditions are coded in a smart contract that is deployed in a decentralized blockchain network. So here users can have full control over their assets or funds.

  • Globally accessible

If you are connected to the internet from any country, the services or the network of the DeFi app that you are accessing will be the same. So with the local regulations, DeFi apps are accessible for all the global users.

  • Transparent codings

All transactions in DeFi apps are completely made public. So anyone can view the transactions at any time. The codings in the DeFi are transparent so anyone can quickly understand the functionality. Also, they can find and rectify the bugs and issues in coding.

  • Interoperable  

An innovative DeFi app can be launched by the combination of other similar DeFi products. For instance, peer to peer exchange, market predictions, and stable coin can be combined to form a new DeFi product.

Now, let us look at some popular DeFi Dapps

There are many DeFi apps in the marketplace. But only a few apps have good popularity among the people. Such as

  1. Compound – lending and borrowing app
  2. Augur – market prediction app
  3. Kyber network
  4. Synthetix – synthetic assets app
  5. Curve 
  6. Uniswap – Automatic token exchange app
  7. Open sea 
  8. YAM finance app
  9. Balancer 
  10. Marker DAO – stablecoin and Decentralized reserve bank

Leaders from various industries predicted that DeFi will be the next financial tool that would bring an updated fintech network. Currently, many business people started to create promising DeFi tokens. Also, they launched them which started to shine in the marketplace.

What are DeFi tokens?

DeFi tokens are mostly ethereum blockchain-based tokens. These DeFi tokens may be asset-backed, fiat-backed, crypto-backed, or whatever. DeFi tokens are end-user entities. So these tokens will act as a medium for users, Traders, customers, or investors. They would take a major part and experience the financial services in a newly created DeFi decentralized application. There are some prominent DeFi tokens in the marketplace. Such as

  1. Compound DAI – comp token
  2. UMA – UMA token
  3. Maker – MKR
  4. Ox protocol – ZRX
  5. Kyber Network – KNC token
  6. Aave – LEND token
  7. Synthetix – SNX token
  8. REN protocol – REN token
  9. Loopring – LRC token
  10. Bancor – BNT token

Hidden Advantages of DeFi

  1. Traditional finance needs an intermediate. But DeFi applications do not need any intermediate or middlemen.
  2. Here users can have full control over their own assets.
  3. These financial services are built-in a top decentralized blockchain network. So it avoids the chance of failure.
  4. Deployment of the DeFi application is less complicated and much more secure.
  5. It is an open-source ecosystem, so anyone can easily access the Dapps.
  6. By using DeFi, the costs are significantly reduced. Also, low-income people can be benefited from a broader range of financial services.
  7. Decentralized architecture increases security 
  8. It provides permissionless access. So anyone with the crypto wallet and an internet connection can access the DeFi Dapps easily.
  9. The level of transparency is high in Decentralized finance.
  10. You can combine two or more DeFi products to create a new DeFi product.

Future of DeFi

It primarily focuses on the collateral as a safeguard. So one must own any digital currency to provide it as collateral for borrowing more cryptocurrency. In the future crypto wallet will be a portal for storing all the digital assets. Most of the experts in blockchain space are saying that already many industries started moving towards a decentralized network. So we can expect more from the DeFi ecosystems in the future. Hence, the DeFi ecosystem will create an open system and make the entire financial industry more secure.

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About the author

Steve

I have started my career with Search Engine Optimisation and slowly concentrated on creative part as well. Now I'm working with a leading Blockchain Development Company in India - Zab Technologies

By Steve