What is DeFi?
DeFi is a non-centralized ecosystem of finance. Customers can use it to interact directly with one another and their finances. It is an open network that could eventually become an alternative to centralized bank services. The main advantage is that it gives users access to credit and investment platforms without restrictions.
On DeFi platforms, you can get credit without providing extra paperwork or risking rejection. All you need is a crypto wallet and the funds in it.
The platforms also have no access to users’ assets, which eliminates the risk of having funds frozen or missing from your account due to a centralized authority’s decision.
How does DeFi work?
DeFi’s crypto payments platforms are based around blockchain technology and Smart Contracts. These latter automatically monitor compliance with the terms programmed into the contract and prevent fraud or deception. Each platform also has its own crypto token. Using this crypto, customers gain access to the platform’s functionality.
DeFi platforms are most commonly based on the Ethereum. But there are also popular DeFi blockchains. For example, Solana, Cardano, BNB, Polkadot.
How is DeFi used?
Decentralized financial platforms can be used in the following ways.
- The creation of Stablecoin. They allow investors to generate income from their crypto-assets, reducing the negative effects of volatility.
- Cryptocurrency landings. Cryptocurrency lending platforms where borrowers and lenders meet. Lenders can lend a certain value of cryptocurrency against assets in a wallet. Lenders make the loans, for which they receive interest. Secure terms are monitored by smart contracts that spell everything out.
- Decentralized Exchanges (DeX). Act as a platform on which users can trade.
- Farming. A way to generate passive income. Investors send assets to the platform’s liquidity pool and receive interest and rewards for doing so.
- Prediction Markets. Platforms where users can make predictions in a wide variety of areas. It could be the result of a soccer match, an election, the rise, or fall of a particular currency, etc. Prediction markets are a very valuable source of data because they analyze collective knowledge to create accurate predictions. The goal of participants is to make money using the information obtained.
The field of decentralized finance attracts users with the absence of intermediaries in financial transactions, transparency, security, and reliability.