DeFi stands for decentralised finance and is pronounced as dee-fy. This is becoming increasingly popular due to it being able to cut out the intermediary when making transactions which in turn goes straight to the intended person. This has of course gained popularity due to it being an alternative to traditional financial services. DeFi lets you do most things a normal bank offers as well as other centralised finance companies. In this blog, we will answer what is DeFi and how it differs from centralised banking.
What is DeFi
Due to this being relatively new, many people are wondering what DeFi is and why is it getting so popular. DeFi refers to decentralised finance services on blockchains instead of centralised financial services that banks offer. DeFi allows users to use cryptocurrency to provide a range of services that a bank would offer such as lending, borrowing, earning interest and much more. DeFi is faster, more affordable and much simpler it also offers new products and benefits regularly. What DeFi is offering is cheaper and more reliable services than a standard bank.
What is decentralised finance?
Decentralised finance allows transactions directly to the other person through blockchains. What Defi is allowing you to do is access your assets through a secure digital wallet which in turn enters you into smart contracts to make your transactions. This then lets you have access to a range of financial services such as lending and trading. What is great about DeFi is the fact that it is accessible to anyone with an internet connection making it more accessible and convenient.
What is DeFi vs CeFi
Centralised finance (CeFi) is the standard financial culture that we all know around the world. This form of financing allows you to borrow, trade and pay through third parties and intermediaries that are heavily regulated. What is different with Defi is the fact that it offers a range of benefits including allowing people to transact through their financial apps through a blockchain. This cuts out the middleman such as the standard bank organisations.
Removing intermediaries, it in turn reduces costs, makes transactions much faster and makes it more accessible for users with an internet connection. With CeFi, not everyone can open a bank account and they certainly can’t always access other financial services. What DeFi is doing is enabling many people to access financial services which they would not be able to with CeFi. Due to DeFi being constant, you don’t have to wait until your bank is open, you can use the features whenever you want.
What is Defi Smart Contracts?
Smart contracts are contracts that are self-regulated on a blockchain. Each peer in the contract will implement their own terms and conditions which allows the contract to be formed without the intermediary. Smart contracts use code and are formed with simple rules such as “if equal to… then this should happen. Smart contracts are automatic if they meet the terms and can be used for a range of features such as sending funds to accounts on a certain day or time. In essence, What a DeFi smart contract is doing is the same as CeFi, but it is more secure, efficient and transparent.
How Does DeFi Work?
What DeFi is doing is using smart contracts to enable people in the decentralised finance ecosystem to transact directly with one another. These transactions are protected through a blockchain. Many DeFi products allow you to always remain in control of where your money or assets are going. By using DeFi, you can access funds or your asset using your digital wallet. When you are wanting to transact with someone, you can do this through your smart contracts where you and the other parties form conditions to meet before the transaction is made.
An example of what is DeFi would be if you were wanting a regular payment to an account, this will continue on a regular basis if there are enough funds in the account. Once a contract is formed, it can’t be altered or moved to a different account, so it is extremely important to set it up right the first time. DeFi is built on the Ethereum blockchain and is still in its beginning stages which means new products and services are available regularly.
What is DeFi? – Current and Future Examples
The Ethereum blockchain is fantastic for sending digital assets around the world in a matter of seconds. There are many benefits of the Ethereum blockchain and there is much more to it than just the standard borrowing, lending, saving and earning interest on your cryptocurrency. Traders will mostly have control of their own wallets, but some may use brokers or private investors. If you have been scammed by this, contact us today and we can help recover your losses.
What is DeFi Currency Exchange?
DEXs (DeFi currency exchanges) are platforms that allow traders to exchange cryptocurrency with their peers. DEXs allow direct trading between peers without the intermediary whilst also being completely anonymous. By having a private key, users can access multiple cryptocurrencies.
What is A DeFi Stablecoin?
Stablecoins are tied to stable currencies or assets such as gold. They aim to remove and remedy the instability of digital currencies. These stablecoins are much less volatile and are used for everyday transactions rather than using volatile cryptocurrencies. They are very easy to transfer across the world which also makes sending large amounts of money much cheaper and faster whilst also enabling users to earn interest.
Conclusion
If you are wanting to start with DeFi beyond trading cryptocurrency, you should do so with care and be sure they work reliably with other peers. So, what is the benefit of DeFi? Transactions are cheaper, faster, and more secure and they can be used for a range of different services. It is extremely important that you create your contracts properly and never give anyone your long password for your digital wallet.
