DeFi is the common name given to decentralized financial transactions consisting of the terms decentralized and finance. It is short for Decentralized Finance. DeFi is the finance system structure that is not dependent on any center or authority. Bitcoin and Ethereum are ideal examples for DeFi.
Firstly it is an open-source code system that makes financial transactions possible. DeFi applications make it possible without intermediary institutions and centralized authorities. The Defi platforms/applications allow users to make financial transactions on smart contracts without centralized institutions and regulations. Among these transactions insurance, loans, markets, savings, lend, borrow, and more can be done. Also, DeFi apps recently spring up new concepts like yield farming, native and non-native pools, prediction, lottery, vault, NFTs, etc.
Secondly, it runs on blockchains and Ethereum is the most popular blockchain to build Defi apps. Also, these apps can be built on other blockchains as Binance Smart Chain, Solona, Polygon, etc.
Due to the rapidly expanding popularity, it brings inflation to DeFi apps. For instance, Curve, Oasis App, Aave run on the Ethereum blockchain. Pancakeswap, Venus, Biswap run on the Binance Smart Chain. Quickswap, Sushi, Dfyn Network run on the Polygon blockchain. Apart from these, when you research, you will see in which there are lots of apps run on blockchains.
Differences and Advantages?
- Decentralized finance protocols run with smart contracts and not pegged to centralized authorities and governments.
- It is a fast global and secure alternative contrary to the current financial system.
- It has open-source code technology.
- Users do not need a bank account, social security number, a government-issued ID, or proof of address to make transactions.
- Decentralized finance platforms allow people to make transactions without any restrictions.
- The Decentralized finance platforms offer financial services to the people who don’t have access to traditional financial services such as banking options like loans.
- With Defi, markets and trading are always open in 24h. You have a chance to make transactions without a specific time zone.
- Decentralized finance platforms allow raising funds for new cryptocurrency projects.
- Users hold their funds and can control their money freely.
- Transfer of funds happens in minutes. So, it is open to anyone.
Disadvantages of DeFi
- Defi applications run on the blockchain, so it is possible to encounter error codes and hacking attacks.
- With Decentralized finance users steadily increasing day by day, decentralized finance space needs more technical infrastructure for users.
- The developers and app owners can run away with funds and disappear because they can keep them anonymously in this system.
In addition, transparency is the most important thing for decentralized finance apps. Anyone can look at transaction data and inspect how the system works.
Consequently, It is an option that has more advantages than the traditional finance system. The main aim is to create a more democratic financial system.
Decentralized finance is the future of finance. All it needs is development. More about decentralized finance is here. Also you can look at these: