What is DeFi?

Read full article at The Capital.

DeFi, or decentralized finance, is the technology that was introduced with the introduction of blockchain technology. DeFis are also known as open finances. DeFis or decentralized finances work on a public blockchain.

DeFis are open markets that are accessible to every individual with internet. Looking at the history of DeFi, this term was coined during a conversation on telegram between two investors. DeFi focuses on replacing the intermediaries that are the middlemen and centralized authorities with autonomous organizations. This encourages people’s participation.

DeFi takes its inspiration from blockchain. The working of DeFi is mostly based on the Ethereum blockchain. They generally do not have any authority or are in charge. It is valuable because it expands the use of blockchain, even from simple value transfers to complex ones. DeFis is currently said to be the first step to decentralized internet. Looking at the importance of decentralized finances, let’s first understand the components of DeFi.

They are:

  1. Decentralized infrastructure
  2. Decentralized currency

Decentralized infrastructure is the blockchain network of the DeFi, whereas decentralized currency is something that works in accordance with the infrastructure and smart contracts. Now, noteworthy is the smart contract. They are the programs stored on a blockchain that runs when the predetermined conditions are met. It is a part of an autonomous system that aims to work without the involvement of a third party. But this all makes me wonder what exactly is the significance of this. DeFi, as mentioned, has all its importance is stored in the word ‘Decentralised,’ that is, instead of leaving all your financial power in the hands of the intermediate or the third party, one gets the opportunity to monitor, manage and give users complete independence to handle their own finances. DeFis are used mainly at the lending platforms. They use smart contracts, and as mentioned earlier, the smart contracts focuses on the elimination of the intermediaries.

What are the applications and benefits of the DeFis:

1. DeFis enables the users to exchange the currencies with other currencies. They are a hot type. It enables users directly so that they trade cryptocurrencies with another without trusting middlemen with their finances. They run on decentralized apps.

2. They are open or transparent, that there is no need for any registration or providing your email, mobile number, name, or any personal information. All you need is just getting access to your wallet. Anyone who is involved can see the full set of transactions.

3. The DeFi systems share high speed, as the rates and rewards are updated within 15 seconds of any transactions.

4. Security. Security is the major concern when it comes to finances. Due to the system completely working on a blockchain, the security and privacy automatically increase.

Conclusion:

DeFis or decentralized finances are the financial services provided using cryptocurrencies that are programmed through smart contracts, lending services without a centralized authority. It allows various entities to hold a copy of history and transactions which means it isn’t controlled by any single source. There are communities working behind. It provides transparency options to the users. It is an overall flourishing technology that is in need currently of better transaction options.

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What is DeFi? was originally published in The Capital on Medium, where people are continuing the conversation by highlighting and responding to this story.

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