What Is DeFi?Nov 05, 2021
While growing in popularity, cryptocurrencies and especially Defi have yet to gain footing with a broad consumer base. A lot of this has to do with how complicated decentralized finance is to most people. However, it is not that hard when you know the basics.
What Is Decentralized Finance (DeFi)?
To understand what decentralized finance is, let’s compare it to its counterpart: centralized finance. Centralized finance is the model upon which most financial systems are based on today. Whenever you borrow money, make payments, or take money out of an ATM, there is always another party involved in the transaction.
The other party involved is usually an institution with regulatory and oversight authority like a bank or financial institution. They are what you might call “central” authorities. These parties have the power to handle your money. More importantly, they serve as safeguards against risks. However, some downsides come alongside their ability to safeguard your money.
Central authorities safeguard your money. And any authority that manages money on your behalf can also serve to pry on you. Yes, your bank sees that you just bought that “thing” you don’t want others to see 😊. Also, centralized finance, for this reason, puts everyone in a precarious position where they are not 100% in control of their finances. If someone can see what you are buying and what you are doing AND can restrict you, you don’t have 100% control over your money.
This is where decentralized finance comes in. With decentralized finance, there is no central authority. Hence, you hold your money and freely conduct any financial transaction on a platform that does not involve a bank or brokerage firm.
The Benefits of Decentralized Finance
In the absence of a central authority that can stop and spy on transactions, you are left with the freedom to use your money (cryptocurrency, in this case) freely. The freedom to access several financial services like purchases and loans on a decentralized platform such as Uniswap, Pancake Swap and the like benefits you in a few ways:
The Market Is Always Open
The DeFi platforms never close, unlike a bank. So, you will be able to carry out transactions whenever you want, even at 2 AM.
You Can Remain Anonymous (Pseudonymous)
With centralized financial transactions, you will be allowed to access services only if you have some form of identification. The absence of a central party that regulates transactions will allow you to remain pretty much anonymous as you carry out transactions quickly on DeFi Platforms. The good thing about this is that you own your money, and you can do with it as you please. The downside is there will certainly be nefarious players out there exploiting this.
You Can Borrow and Lend On DeFi
With just the coins you have in your wallet, you can lend them out and gain an astronomical rate of return on them. You can also borrow funds as well. There is no credit check and no one denying you credit because you missed a payment on your credit card. It truly levels the playing field and GIVES YOU BACK THE POWER. It is your money after all.
DeFi Defies Traditional Financial Systems.
Decentralized finance is the future of financial services and investment. Without the heavy hand imposed on you by a central authority, people are given freedom to handle your money as you would like
If you have been thinking of getting into cryptocurrency, it will be a decision that opens you up to:
- More transactional freedom
- Financial privacy
- Financial flexibility to achieve your goals
- And A LOT more.
If you are interested in learning about Defi, Blockchain Immersive will be releasing an in-depth course on it. Add yourself to the mailing list below and get notified when it is released.
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