Defi is an umbrella term that represents financial services and tools in Blockchain and cryptocurrency. It stands for “Decentralized finance”. Let’s go deeper into explaining What is Defi.
The Defi concept
Under traditional banking concepts, the intermediaries have the financial exchanges, derivatives, loans of the customers in their ledger. The most popular middlemen between transactors and beneficiaries known as banks simplify their services’ users’ control over their money and limit the expedition speed of the transactions. Most of us must find these banking service offerings familiar. Register an account, keep it in credit, and don’t know the credit is being loaned to which companies or organizations. They also have the right to keep track of where the money goes, delay the money transfers for several days and cancel or return remittances whenever you do an e-banking transaction.
Defi sets apart itself from the centralized finance concept. The decentralized financial applications are inspired by Blockchain which is the platform for Bitcoin-the digital currency is taking the digital investment market by storm. With the use of this, middlemen’s intervention in any of your transactions would be cut out. This doesn’t only mean that direct purchases are kept from the supervision of banks and middlemen but also mean that they won’t oversee the other financial activities such as crowdfunding, loans, derivatives,... . Instead, we will ourselves.
What Defi offers?
Defi consists of several tools enabling the crypto transactions between users and financial applications such as borrowing, lending, exchanging crypto assets without a third party involved. Instead, smart contracts are responsible for arranging these.
The most outstanding Defi applications type:
- Decentralized exchanges: DEXS allows users to connect directly to exchange cryptocurrencies without the interference of any other intermediary. It enables people to exchange between currencies, Ether for DAI or U.S dollars for Bitcoin.
- Lending Platform: Debtors and creditors connected with lending platforms don’t need a third party like a bank in the middle to manage the loans and borrows. Smart contracts are entrusted with handling this.
- Prediction markets: One of the purposes that Defi is heading to is to remove intermediaries in bets.
- Stable coins: Apart from cryptocurrency, the dollar or euro is associated with stable coins to sustaining the stability of these currencies.
How profits are up for grabs in Defi?
Defi brings interests and the costs that benefit banks and middlemen back to money owners. Instead of leaving the fees collected by intermediaries, you can make money off of them and the price swing and market variations tend not to affect the stream of profits.
The investments, stakes, loans are under the users’ control and they don’t have to be under any other entity’s scrutiny. No fees for a bank and centralized financial management tools certainly mean more benefits in assets and financial privacy.
Is Defi completely safe and easy-to-use?
For newcomers that have just set foot into the digital market of cryptocurrency, there might be more dangers to your investments and speculations than you think. There are bad tools offered besides good applications and it is hard to tell between them. Hot dog and pizza and yam, a few among many Defi apps, have failed to be lucrative profit offerers for their investors. To be worse, they ruin the market capitalization and result in users’ loss of money.
Cryptography despite its objectivity, can cause disturbances to users due to the strictness of the smart contracts’ functionality. The contracts might be hiding bugs in them and once the provisions of the contracts are set that means the bugs are permanent and can pose threats to your financial transactions.
In case of being combined and misused, digital instruments will cost the users much just like how considerable they will profit investors being made use of rightly.
Market changes have some effect on the gains you will get and the loss you might suffer while providing liquidity to the decentralized cryptocurrency. You may find yourself stuck with troubles when the crypto asset value is going down persistently. Needless to say, your deposits are at stake.
Some Defi apps don’t permit you to pull out of predefined events that means you can’t give up on your positions even if you have changed your mind.
In parallel to the accelerated development of DEFI and cryptocurrency, many apps in the field are set forth to create a safe and optimal ecosystem for digital cryptocurrency fans to expedite their stakes and investments securely with minimum risk factors. A qualified DEFI app should take into account the conundrums which are likely to happen in the decentralized system and offer their very best of services to run the choices of the transaction of its users smoothly and safely. For example, the Yield app uses carefully-audited smart contracts and claims to analyze DEFI tools as well as stay away from those which are likely to pose fraud risks.
Will Defi soon dominate the market?
Factoring in the securities and big profits that Defi can bring about, this concept is completely potential to be welcomed by more and more people in the future especially when money owners have found that they can have control over their transaction and don’t have to only make simple value transfers that are watched and managed all the time by banks and financial companies. The blockchain space and cryptocurrency market are getting more and more bustling over time. More and more have got to know and use and invest in bitcoin and other crypto-assets. They lean into the independent and novel idea of this concept where they are aspiring and ambitious planners who take the significant parts in distributing and managing their source of money.
Although Defi is still a new concept to many people, it has many of us thinking about getting rid of the overcontrol intermediaries are having over from our daily purchases to our bigger plans of investment. With consistent use of Defi tools, you can gain many profits from this type of digital idea. In contrast, the consequence to your finance will be costly if misconfigurations and mismanagements of Defi occur. So be careful and choose the right Defi tool for you is extremely important.