DeFi assets are among the leading offerings in the current world of altcoins and are empowering people everywhere to participate in the financial revolution through crypto.
What is DeFi?
DeFi, short for decentralized finance, represents a segment of the crypto sphere that focuses on peer-to-peer transactions and digital finance. By harnessing the efficiency and power of smart contracts, digital contracts that live on the blockchain, DeFi platforms create a space for lending, borrowing, trading, saving, and earning interest that doesn’t require all of the usual bureaucracy and paperwork. The goals of DeFi are simple:
Automate the financial experience – smart contracts are processed digitally on blockchain technology, so no paperwork and no wait time through the bank for transactions to clear.
Cut out the middle man – automating the contract process on the blockchain takes away the need for human intermediaries, eliminating the need to engage outside mediators such as lawyers to process agreements between parties.
Efficiency through speed – with no need to rely on different parties or deal with wait times to complete a transaction, DeFi makes doing business a more seamless and fast experience from start to finish.
Accessibility to all – many of the financial opportunities offered through DeFi platforms are usually reserved for major financial institutions like hedge funds and banks. DeFi is closing the gap between the individual and the financial oligarchy.
Our economy is becoming increasingly digital, but it may still be difficult to visualize this transformation action. To understand how DeFi works, think of the lending process. To take out a loan through a bank, there are documents to be filed, credit scores to be checked, representatives to speak to, and time to be spent discussing your options and waiting for approvals. In the world of DeFi, you have the option to store your collateral in the system to obtain a loan within minutes and, once your loan is paid off, your collateral is returned to you.
In a similar way, DeFi improves upon the process of holding savings on a decentralized platform because your assets can earn significant interest with higher rates. This kind of passive income is incompatible with the current banking system, which provides minimal interest to investors and doesn’t allow for the same level of financial growth over time.
DeFi offers a financial revolution that helps eliminate economic gaps, and creates attainable financial solutions through the use of crypto. DeFi is offering a more financially soluble future, empowering to build wealth independent of institutions and powered by blockchain and mathematics.
DeFi terms to know:
Public Keys – a numerical code, also known as a wallet address, that serves as a means to identify transactions and send or receive crypto through open channels that are less secure. This is because public keys can only encrypt data, not decrypt. To decipher a public key, you need the private key that goes along with it.
Private Keys – a numerical code that decrypts data in transactions, allowing for the safe transfer of crypto funds. Private keys provide faster transactions, are tied to their corresponding public keys mathematically, and are only known by their user for the sake of security of funds.
dApps – short for Decentralized Applications, which are apps that run on the DeFi network.
DEX – short for Decentralized Exchange, these serve as peer-to-peer exchange platforms on the DeFi network.
Smart Contracts – a peer-to-peer contract containing code that allows for autonomous execution on the blockchain.
Gas Fees – the phrase people use to refer to fees charged for transactions that take place on the Ethereum network.
How do DeFi platforms work?
The peer-to-peer nature of DeFi means utilizing and storing public crypto to exchange cryptocurrencies through designated DeFi applications, known as dApps, to power peer-to-peer financial transactions on-chain. Most dApps are currently built on the Ethereum protocol, which is known as the backbone of the DeFi network. With almost all DeFi transactions currently taking place on the Ethereum blockchain, Ethereum’s transaction fees (referred to as gas fees) are valued based on the network’s usage.
The future of DeFi
The goal of cryptocurrencies, as a whole, is to improve upon the systems we have in place to create a more efficient, scalable and accessible world of finance. Decentralized finance stands to bring that accessibility a step further and create a more open monetary ecosystem.
Also, by making the tangible parts of doing business superfluous, like paper contracts and office spaces, it can create a more sustainable and eco-friendly alternative to Wall Street and big-bank institutions. DeFi is reinventing the world of finance, bringing real plausibility to the term “financial revolution.”
Hope this helps someone 🍻