Defi is making rounds in the crypto ecosystem because of its great potential and the freedom it brings to the world at large.
After noticing how ignorant people are over Defi, cryptoforpidgin decided to create an article to acquaint our readers with Defi.
What is Defi?
Defi means Decentralized Finance, its the latest financial technology based on blockchains(the secured ledger where crypto related transactions are recorded on).
This financial technology mitigates the centralized authorities (banks) over individuals, giving them the full ownership over their finance. Defi gives you control over your finances, financial products and financial services.
Key Advantages of Defi
Defi brings freedom and removes central authority(third parties) over people’s finances, below are few advantages of Defi.
- No more Banks and financial institution Fees
- Your finances are in a secured wallet instead of centralized institution(banks), which gives you full control.
- Brings freedom and easy access-just an internet connection without a central approval
- Seamless transfer of funds
Centralized Finance
Since we are talking about decentralized finance, it means there must be a centralized finance framework, so lets discuss about centralized finance.
Centralized finance involves a central body or third party when it comes to financial dealings.
Centralized finance is profit oriented by the central authorities involved, example the banks.
The centralized finance system consist of lots of third parties who runs money movement between parties(banks and you or banks and another financial firm), in this case all the financial bodies involved, charges a fee for approval. Using your ATM card for payment, requires some fees to be processed by the different third parties involved. No fee no approval. That’s why it is called Centralized Finance.
The stress taking on a centralized finance system can be mitigated by the decentralized system. Think of the stress in taking loan for banks, sometimes it might not even be processed but all this wont fall out in a decentralized system.
Decentralized finance removes the effect of central bodies and third parties, privileging users to run transactions safely with blockchain technology.
Defi work with peer-peer financial secured networks to accomplish a given task.
This makes it easy for a user with just an internet connection to loan, buy and sell, borrow and save funds with a highly secured software that records and verifies financial actions in blockchain (data can’t be hacked or tampered with). The blockchain technology makes it so transparent as any transaction is recorded and can be verified easily across the world.
Defi Working Procedures
Defi use blockchain technology as their working procedure.
A blockchain as previously discussed, is a secured ledger where crypto related transactions are recorded on. When it comes to how blockchain transactions are handled, An application called DAPPS makes it possible.
How the blockchain works
The blockchain works by chain system called Block, in the principle of operation, crypto transactions are recorded in blocks and then confirmed by other users. If the users agree and authorize a transaction, the block will be closed and encrypted(completely secured).
After the closed block, another fresh block will be created automatically containing the previous information in it.
The blocks are grouped information and they are linked together to form a chain leading to the Blockchain. The Blockchain is built in such a way that the information can never be altered as they are linked together. That is why Blockchain is trusted and remains the future Technology.
How does Defi help P2P transactions?
DeFi working system helps p2p transactions to be secured and done without a third party.
A centralized Pair to pair (p2p) transaction involves two persons or users coming together to exchange cryptocurrency for goods or services with a centralized body and in a centralized platform.
But Defi coming to the world will remove the effect of the centralized body. In Defi p2p transactions, a decentralized finance application (dApp) will be used to enter your exchange needs, and the other user would enter his/her needs too an algorithm would automatically match you up together, depending on your needs. After matchup, you need to approve the transaction and receive your goods and services. This also happen in loan acquisitions.
The lender and the burrower will be matched together by an algorithm and you will then agree to the lenders terms and receive funds automatically. In Defi, you won’t need collateral since everything is automated, payments of loan will be made through smart contracts.
Know that all transactions will be recorded in the blockchain, so no one can fraud anyone in a Defi system because of heightened transparency of the blockchain technology.
Cryptocurrencies are used in the Defi interface and a lot Defi currencies are evolving.
Bitcoin the worlds first cryptocurrency is not a Defi currency, but Ethereum remains a Defi currency because of its proof of stake and proof of work abilities.
Defi Tokens
A lot of Defi tokens have been brought into the crypto space. The following Defi coins were sorted out carefully.
- AAVE- Currently trading $134.22 as at the time of this post with a market capitalisation of $1,814,606,582.
- YEARN (YFI)- Currently trading $20,628.71 as at the time of this post with a market capitalisation $754,585,751.
- UNISWAP(UNI)- Currently trading $9.09 as at the time of this post with a market capitalisation of $5,728,669,102.
- SUSHISWAP(SUSHI)- Currently trading $3.53 as at the time of this post with a market capitalisation of $448,450,157.
- REN PROTOCOL(REN)- Currently trading $0.2837 as at the time of this post with a market capitalisation of $282,147,166.
- CURVE(CRV)- Currently trading $2.49 as at the time of this post with a market capitalisation of $1,114,031,090.
- UMA(UMA)- Currently trading $5.29 as at the time of this post with a market capitalisation of $345,556,798.
So many Defi coins were not listed because of how many they are.
Disclaimer
The article here is only for information purposes as investing in cryptocurrencies posses high risk and cryptocurrencies are highly speculative, therefore you are advised to make your research or consult a qualified person before investing. This article doesn’t support or aid investments.
Conclusion
Defi’s major goal is to eliminate third parties and central bodies within a financial transaction. Although Defi is still evolving everyday, it will be advisable to always research more on it principles.
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