DeFi (Decentralized Finance) is becoming the hottest topic in the crypto space in particular and the blockchain industry in general. Not only in the financial aspect, but also in terms of investment, making profits based on DeFi tokens is also very interested in the community.
What is DeFi (Decentralized Finance)?
DeFi ( Decentralized Finance) is often used to refer to digital assets, smart financial contracts, decentralized applications, and protocols (DApps) built on the Ethereum blockchain. Simply, DeFi is a system of open financial products (Open Finance), Permissionless (permissionless calculation), and nested.
DeFi is an overlapping network of Ethereum-based DApps and smart contracts that focus on financial applications like loans, derivatives, exchanges, and trading, etc. DeFi can also be called Open Finance because it combines traditional banking services or CeFi (Centralized Finance) with decentralized technologies like blockchain.
Advantages of DeFi
As mentioned above, in traditional finance, institutions, markets, and financial instruments always exist in centralized power. Meanwhile, DeFi leverages Blockchain’s power of transparency and decentralization to eliminate these intermediaries.
Essentially, activities on DeFi are not governed by an organization or by any of its employees, but instead, the rules are written in code (or smart contracts). When smart contracts are deployed into the blockchain, DeFi Dapps can run on their own without any human intervention (although in practice developers often maintain dapps with upgrades or fixes).
These smart contracts are completely transparent on the blockchain for everyone to audit. This gives another belief to the user, as anyone has a chance to understand the function of the contract or find the error. All transaction activities are also open to the public. While this may pose privacy questions, by default, transactions are pseudonym only, i.e. not tied directly to your real-life identity.
DeFi was designed to be global from the start. Of course, each country may have its own rules that apply, but technically, most DeFi applications are available to anyone with an internet connection.
With the Permissionless feature (as mentioned above) anyone can create DeFi apps and anyone can use them.
Flexible user experience: If you don’t like the look of any dapp, it’s okay, you can use a third-party interface or build your own. A smart contract is like an open API that anyone can build an application with.
Interoperable: new DeFi applications can be built or created by combining other DeFi products such as “Lego pieces” – for example, stable coins, decentralized exchanges, and prediction markets. can be combined to form entirely new products.
Disadvantages of DeFi
The only downside of decentralized finance is probably the approach and use, DeFi is tied to crypto-assets, so for users, they will need time long enough. to learn and learn how to use DeFi applications.
Popular DeFi apps and services
Currently, there are many DeFi applications. These applications have been saving time and money for businesses and customers alike. DeFi platforms have already started to appear across most financial sectors.
Based on transparency, trustless, permissionless. DeFi creates financial services that provide easy access to users such as payments, loans, loans, investments, and portfolio management with greater autonomy and fewer barriers.
Besides, programmers can build DeFi applications (DApps) on the blockchain to issue, store, and manage their crypto assets. And, smart contracts bind irreversible agreements between two parties without the need for a middleman. From there, it makes the entire financial system transparent and safe.
Specifically, the current popular DeFi applications and services include:
- Lending Platform (decentralized lending platforms): Compound, MakerDAO, Cred, Dharma, ETHLend, Constant …
- Derivatives (Decentralized derivatives): Tokensets, Uma, Dydx, Veil, Augur, Market protocol …
- Payments Platform (decentralized payment platforms): Omisego, Helis, Request Network, xDai, Connext …
- Stablecoin (decentralized stable currencies): DAI, Terra, Reserve, Ampleforth, Neutral USD, Paxo, True USD …
- Decentralized Exchange (decentralized exchange): Kyber Network, Ren, IDEX, Binance DEX, Bancor, Nash, 0x …
DeFi’s explosive growth
DeFi has become the most sought-after topic since late 2019 until now. That is demonstrated by the participation of users in this potential market. Referring to DeFi, we cannot ignore the Total Locked Value (TVL) metric in DeFi – a parameter that shows the degree of user participation in DeFi services.
According to Defipulse, at the time of writing (August 12), the total value locked in DeFi protocols has reached nearly $ 4.6 billion, of which MarketDao’s Maker accounts for over 30%.
This number started to increase rapidly in early 2020 when in February, the total value locked for the first time reached the $ 1 billion mark, and it only took 5 months to reach the $ 4 billion mark. This shows that the level of user engagement with DeFi applications is extremely large.
The Potential of Decentralized Finance (DeFi)
The potential of the DeFi sector is perhaps unquestionable, based on the information and data mentioned in this article, we can see that decentralized finance will be the future of finance. world and it is the premise for us to enter Open Finance. When people hate the centralization of the traditional financial system, they want freedom, unregulated, and especially for those who have no access to finance and banking, such as residents. African countries, for now, will tend to turn to DeFi to manage personal finances on their own, without relying on third parties or any centralized institution.
“DeFi’s goal is to rebuild the banking system around the world in an open, trustless way,” said Alex Pack, managing partner at the $ 100 million crypto fund Dragonfly Capital. . “You only get that chance every 50 years.”
Above is the article “What is DeFi? All you need to know about Decentralized Finance”, hope it will bring useful knowledge for readers. Good luck!