What, How and Why Decentralized Finance?
DeFi stands for Decentralized Finance. It is an emerging financial technology consisting of secure distributed ledgers like cryptocurrencies. It is an open alternative to the conventional financial system and let the users borrow, invest, or trade the products. Being an open-source technology, hence anyone can program with it. It removes the financial institutions to manage money and financial services. Every so often, it is a communal term for financial products and services accessible to anyone using an internet connection and Ethereum. It ensures an open market with no centralized authorities who may block or deny the payments. Moreover, it addresses the risk of human error and ensures safer financial transactions.
Cryptocurrency volatility is a problem for a wide range of financial products and spending. However, DeFi has solved the problem with stablecoins. Stablecoins are cryptocurrencies without volatility. Their value is steady and resembles traditional currency. In addition, it provides involatile money that can be used on Ethereum. Therefore, such coins are high in demand to earn interest, exchangeable for Ethereum tokens and secured by cryptography.
Structure of DeFi
DeFi is based on decentralized networks for independent governance and nodes that will validate the transactions. However, with the increasing trends of blockchain, decentralized finance applications seek to improve the governance of the projects respective to token holders.
Basic differences between DeFi and conventional financial system
Future of finance with DeFi
Using blockchain technology, DeFi can ensure that all the transactions are publicly visible, verifiable, and tamper-proof by anyone. It would remove the need for trust in any third party. The parties are interacting based on a smart contract that is a codified, interoperable, self-executing, and permission less law, and eliminate the need for intermediaries who were charging fees and slowing down the financial processes. People across the world may join this new financial system without any discrimination. With an internet connection only, users would have full control over their assets what could be used whenever they want.
DeFi is the future of the finance industry with independent governance, high transparency, global transactions, no intermediaries, high trust, no hidden charges, and many more. In conclusion, it enhances the efficiency of the financial process by addressing the controlling or executing parties or processes.