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DeFi Development is the biggest disruptor in today’s financial system. It improves access in Decentralized manner for everyone to the major functions such as borrowing, lending, trading, investment, and risk management.
It would serve millions of unbanked people. It is also known as Open Finance. It has a couple of benefits as financial processes become more efficient through automation using smart contracts. Intermediaries are eliminated. High transparency is ensured and chances of fraud are reduced. Users will have more control over their funds using their respective private keys. The transactions executed through the network are immutable and tamper-proof. They can easily sync with multiple decentralized applications as they are highly interoperable.
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DeFi offers users a number of benefits that can help to improve confidence, security and trust in cryptocurrency-based transactions and applications, including the following:
Decentralized Because it's decentralized, DeFi is not subject to the inherent risks with CeFi, where the failure of an exchange can lead to a complete collapse and loss of user funds and accounts.
PermissionlessAs a decentralized model, there is no need for a central authority to approve or enable a transaction. Instead, the model is permissionless as the programmatic logic of smart contracts defines what is possible.
Transparency The smart contract model can enable users to understand the terms and logic of a transaction in a transparent model without hidden code.
AnonymityWhile smart contracts can be transparent on the blockchain, there is no need or requirement for users to be identified. With DeFi, Know Your Client requirements, which are common with centralized and regulated models, do not specifically apply.
Custody In DeFi, users control assets, and custody of the cryptographic private key for cryptocurrency tokens is held by the user.
DAppsDeFi supports dApps, in which users can benefit from financial services applications and other use cases, such as gaming and social media.
FeesWithout a central authority, DeFi provides users with the promise of lower fees than transactions executed in the CeFi model.
There are multiple DeFi services and platforms available today, including the following:
Avalanche Avalanche is a proof of stake blockchain for supporting DeFi smart contracts. It also has its own token with the AVAX cryptocurrency.
DYdXDYdX is a DEX that enables cryptocurrency trading.
Index CooperativeIndex provides several capabilities, including the DeFi Pulse Index, which tracks the performance of DeFi assets and cryptocurrencies.
MakerDAO MakerDAO is a decentralized autonomous organization for governing cryptocurrency operations and created the Dai stablecoin, which is linked to the U.S. dollar.
TrueFi TrueFi provides a lending credit protocol, as well as the TRU token.
There are a broad range of use cases where DeFi is being implemented today, including the following:
Payments DeFi can enable P2P payments without the need for a central authority.
Lending The ability to lend and borrow cryptocurrency assets is a common use case for DeFi.
NFTs Non-fungible tokens enable users to own tokens that can be traded.
Stablecoins An increasingly common use of DeFi is stablecoins. The purpose of a stablecoin is to help limit the volatility of cryptocurrency by pegging the value of a coin to another asset, commodity or currency.
Yield farming For those using DeFi as an investment vehicle, yield farming enables individuals to gain interest income on cryptocurrency assets.
DApps DApps run on DeFi and enable multiple types of use cases, including financial services and gaming.
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