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The Concept of Decentralized Finance (DeFi)

What is Decentralized Finance (DeFi)

DeFi is gradually becoming a household name as a more secure, transparent, and efficient alternative to traditional banking. Getting rid of financial organizations like banks and credit unions opens up the financial system and makes it more open and trustworthy. 

DeFi (or Decentralized Finance) is a collective term for financial products and services accessible to anyone with an internet connection on a public decentralized blockchain network.

That means anyone can use the services without going through middlemen like banks or brokerages. DeFi aims to establish financial transactions without intermediaries between parties.

What are smart contracts?

Smart contracts are an automatic digital agreement between two parties in a DeFi transaction that is directly written into lines of code. Because the way DeFi works is devoid of third parties like lawyers, brokers, and bankers, the decentralized blockchain network incorporates the codes that set the terms of the agreement between the two parties in the transaction. The code controls the transaction, and they are trackable and irreversible. 

The blockchain processes smart contract transactions. The transactions take place only when the terms of the agreement are satisfied — there is no third party involved. Hence there are no trust difficulties. 

Using DeFi For Transaction

Decentralized finance now comprises dozens of various financial applications, with more on the way. After all, DeFi’s potential is limited only by the quality of the smart contract. The following are some of the most important contemporary DeFi services and decentralized applications: 

  • Payments services for sending and receiving money globally. Examples include Lightning network, Tornado cash.
  • Decentralized exchanges of digital currencies and assets in peer-to-peer transactions. Examples: Curve Finance, Uniswap, PancakeSwap, Loopring, Balancer, Liquifi.
  • Borrowing and lending of digital assets and coins. Examples: InstaDApp, Aave, Compound.
  • Stablecoins are crypto-assets attached to real-world currencies. Examples: USDT, DAI, USDC.
  • Trading digital assets on platforms. Examples: dYdX, WowSwap.
  • Derivatives and synthetic assets with protocols that derive value from external assets. Examples: Synthetix.
  • Prediction markets for staking on events and games to win. Examples: Augur, Polymarket.
  • Investments and portfolio management in dApps. Examples: Token Sets, Zapper.
  • Lotteries that use DeFi to distribute lottery tickets and determine winners. Examples: PoolTogether.
  • Insurance service providers are now using DeFi. Examples: Nexus Mutual, Etherisc.
  • Crowdfunding services to collect funds for projects. Examples: Gitcoin Grants.
  • Yield aggregators and multi-protocol interfaces combine several protocols in a single product to improve user experience and increase profits. Examples: yearn.finance, 1inch.

What is cryptocurrency? Here is everything you should know

A cryptocurrency (or “crypto”) is digital money that may be used to purchase goods and services, but an online ledger secures it, and powerful encryption called a blockchain.

A blockchain is a public ledger that records crypto transactions. This ledger is kept on many computers connected by a dispersed network to create a record of transactions on the blockchain.

According to CoinMarketCap.com, a market research website, over 13,000 distinct cryptocurrencies are openly traded.

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