What is DeFi and how does DeFi work?

What is DeFi and why is DeFi important in finance?

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Most people haven't known about blockchain and cryptocurrencies for a long time. It's been almost two years since the cryptographic bubble burst in 2017, and the price of most cryptocurrencies has fallen about 88 percent. But in recent years, there has been a hot topic based on block chain/encryption technology, called DeFi. In this article, I'll explain what DeFi is, how it works, and why we need to know about DeFi.

What is DeFi?

DeFi, short for Decentralized Finance, refers to the ecosystem of protocols, platforms, applications and tools for reconstructing traditional financial products outside the traditional financial system. DeFi solutions are not provided by Banks, but are built using open source software and uncensored networks. Thus, DeFi products are transparent in nature and open to anyone with access to the Internet. DeFi products enable people around the world to participate in financial activities (such as consumption, borrowing, lending, gambling, and trading) in a peer-to-peer manner without relying on intermediaries such as Banks and governments.

Amazing growth in DeFi domain (source: Alethio) & NBSP;

Amazing growth in DeFi domain (source: Alethio) the growth in DeFi domain is staggering, with over $675 million worth currently locked into the DeFi protocol. Over the past 12 months many people have been following developments in this area closely. Now, DeFi is becoming a parallel financial system to the traditional central bank, santander, deutsche bank and pension funds. Almost all DeFi solutions are built on ethereum, a public blockchain platform that is best for development and active users.

How does DeFi work?

The DeFi solution is powered by blockchain technology and USES its most powerful features: programmable digital assets such as bitcoin (BTC) and ethereum (ETH). These digital assets have monetary value mainly because of their store of value nature. Since these assets are programmable, we can lock them up in smart contracts as collateral (similar to a home mortgage).
We can also do all sorts of interesting things with provable locking values. Through this collateral, loans are obtained in the form of so-called "stability COINS". A stability coin is a digital currency whose value is linked to world currencies such as the dollar. We can swap these stable assets for other digital assets and spend them on the Internet, or lend them to loan agreements to earn interest. There are also more advanced things that can be done beyond the range of financial products we know today.

Digital reserve assets are used as collateral for innovative financial products that are fully digital and disintermediated. The ability to interact directly with code anytime, anywhere, without the need for a mediation company is a representative shift.

Why is DeFi better?

DeFi is still in its early stages as a concept and an ecosystem, providing us with a new financial services and currency model. A completely secured, transparent, non-reviewable, composable new model. In our view, it is clear that there are inherent flaws in the global financial system, mainly caused by opacity and excessive borrowing. While it is not believed that the global financial system will be completely replaced by cryptographic alternatives, it is believed that it will exist in parallel with cryptographic alternatives, providing an alternative for those seeking them.
The DeFi solution also has some interesting features from the user's perspective. First, it's unlicensed, which means I don't need anyone's approval or permission to use these products. I don't need to create an account anywhere, share a copy of my passport or trust the bank that my money is actually in the bank. Instead, use your own cryptocurrency wallet to interact directly with the code. Interactions are anonymous, immediate, and can start at any time.

Why is all this important?

Let's start by considering that a large proportion of the world's population does not have access to a decent financial infrastructure. Billions have no access to banking services and billions are vulnerable to government financial scrutiny. The DeFi concept is particularly relevant to these people because DeFi provides them with an unlicensed (and mostly uncensored) financial solution that can help them increase productivity, wealth, and quality of life.

Let's also consider countries with stagnant economies, such as venezuela, Argentina and Turkey. We see that SoV assets like gold and bitcoin have been used to evade the hyperinflation rate of fiat currencies. What if there were a completely digital, universal currency to choose from? This will help them retain purchasing power when local governments mess up the economy.

Why should we care about DeFi? In addition to some practical improvements to traditional bank accounts and services, I believe our generation will become increasingly wary and suspicious of the global financial system.

It may not be urgent yet, but in the event of another financial crisis, I would expect many of us to seek financial freedom and sovereignty outside the traditional financial system.

conclusion

Admittedly, there are still many challenges to overcome before decentralised finance can really take off and fulfil its potential in the global financial system, but that doesn't mean you can't start using it today! In fact, it is highly recommended to see techies use the core concepts of DeFi to engage with the best technology, with communities and networks playing the role of DeFi advocates.

Original address:https://www.first.vip/article/featured/5404.html

Silver block rhythm BlockBeats reminded, according to the circ and other five departments issued in August 2018 on the guard against in the name of the "virtual currency" "block chain" illegal fund-raising risk warning "file, please the public rationality block chain, don't blindly believe in reduction commitment, set up correct concept of money and investment philosophy, effectively raise the risk consciousness; To the illegal crime clue that discovers, can report to concerned branch actively reflect.  

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