If you follow crypto news or market, there is a high chance that you’ve heard of the term DeFi. However, explaining what DeFi is might be pretty tricky. In full, DeFi refers to Decentralized Finance. It is all those means of payment and banking services without an intermediary, person, or institution centralizing the services.
To make it easier, consider a online loan app . Whenever a person borrows money from a bank, they use the institution to get access to another individual’s money and pay a specific interest rate for the amount. If the banks weren’t included in that equation, the percentage charged by the bank for the intermediation wouldn’t exist, meaning that you’d pay considerably less for the quick loan , and the person lending you would still benefit.
This is made possible by DeFi protocols using Blockchain technology, primarily from Ethereum. Hence, it is worth looking at the main opportunities that might arise from using decentralized finance and further understanding the process behind them.
The Decentralized Applications (DApps) are open source and operate autonomously, without a particular authority in control. Any changes are made only when the participants have reached a consensus. Information and protocols are stored on the Blockchain, are protected by encryption, and are accessible throughout the decentralized network. To allow access and reward users to the decentralized network, virtual cards having an assigned value (tokens) are issued. Below are the main opportunities for using DeFi.
A New Financial Market
Decentralized finance ushers in a new and dynamic financial market with fewer intermediaries, more decentralized, and might be very profitable to the users. DeFi might impact the entire financial market as we know it soon. There are many DApps trading presently, offering access to various functionalities based on the available options.
Decentralized finance also has to-do loans. DeFi loan platforms are some of the best in the market. There are over 4 billion US dollars in value locked (frozen assets for carrying out DeFi Operations) only on these platforms. This corresponds to about half of the entire DeFi Market, although many other applications exist.
Payment With no Intermediaries
The other primary application within the world of Decentralized Finance is the development of payment means without intermediaries. This isn’t something new in the crypto community since the main asset (Bitcoin) does precisely that. However, it is still interesting how DApps are solving even the Bitcoin problem. Though this might seem strange, Bitcoin has a speed and scalability problem in its transactions.
Synthetic BTC-backed tokens are created to trade without using the BTC Blockchain. This enables faster and cheaper transactions in Blockchain, making the BTC a better payment method. About 0.5% of the existing Bitcoins are locked in Decentralized finance on Ethereum’s Blockchain like WBTC and renBTC.
Trading Without an Exchange
Suppose you don’t have to pay the brokers’ trading fees (like Binance) and don’t have their custody risk since you’d have total ownership of all your assets. This is the other possibility created by DeFi, from Dexes. The possibility has made various platforms very successful, making it be among the largest categories among DeFi. Uniswap and Curve Finance are the two leading platforms you perhaps should know about.
Although the DeFi ecosystem is relatively new, it has made undeniable progress. However, some gaps still exist to close, though DeFi is gradually coming to a point where it will be used for everyday purposes, similar to fiat currencies or traditional bank cards. According to the Manward letter review, you could greatly benefit from DeFi. It is a new form of finance that is slowly but surely taking over the world.