DeFi is a short form of ‘Decentralized Finance’. It is an umbrella term that includes infrastructure, technologies and processes aims to democratise financial transactions.
DeFi system is based on Blockchain technology largely on Ethereum it enables the removal of intermediaries like banks, brokerages and other financial companies from financial transactions.
You can carry most of the activities that you do with the help of traditional banking system like lend, borrow, earn interest, invest in assets, trade assets and derivatives and buy insurance. But you do not need a third party interference and transactions are faster.
Like all crypto assets, DeFi provides peer-to-peer transactions means between two people without any intermediaries, and keeps anonymity about the owners. Its global and open to all.
It has the potential to create fair, open and free financial markets that would be accessible to all with an internet connection.
You don’t need to open any bank account or fill any form to use DeFi. You get engage with DeFi with the help of a software called as dApps. These dApps that are decentralised applications run on Ethereum Blockchain.
Benefits of DeFi
Let’s see how people are taking the benefits of DeFi :
- Lend your cryptocurrency
You can earn royalty every minute with lending of your cryptocurrency. You don’t have to wait for the completion of month.
- Get a Laon
DeFi system offers a very instant loan called flash loan without any paperwork. You won’t get such fast loan access through traditional banks.
- Trading
You can trade your crypto assets without any brokerage with peer-to-peer dealings.
- Buy Derivatives
You can make long or short bets on crypto assets. These crypto assets can be considered as the future contracts and stock options.
- Save crypto assets
You have an option to save crypto assets for future use and you can earn interest on these assets like you earn from your banks. You would get better interest rates then your traditional bank would offer to you.
Demerits of DeFi
- Risk and volatility is high as there are no regulations and fear of scams.
- Lack of consumer protection.
- You can lose your crypto assets if you lose your passwords as there is no governing body that can help you to recover your password and crypto assets.
- DeFi is still new and in experimental stage. Everything in DeFi is coded and code can have bugs. Bugs can lead to errors, hacks and money loss.
