The buzz around DeFi in the fintech space has only been increasing. DeFi, short for Decentralized Finance, is a financial technologythat facilitates products and services in a system devoid of intermediary authorities.DeFi opposes centralized financial institutions like banks, that makes the customer dependent on a central authority in the establishment, by giving the power back to these customers through peer-to-peer digital exchanges.
Financial market holds the power to change the world by translating revolutionary ideas to an incredible reality. But a centralized power is just as capable of halting the change. Argentina, Venezuela, Zimbabwe- just some countries that have seen zero bank balances at the hands of incompetent bankers and inefficient policies. This run of inept restrictive transactions, fallibility and questionable functionality gave rise to the need of an urgent solution, that the world then found in Satoshi Nakamoto’s Bitcoin. Bitcoin, and other early cryptocurrencies, brought mediator-less transactions and decentralized asset storage to the table; an “open finance”.
DeFi looks to improve where centralization lacks in its old and proven methods. As the financial structure of the world grows, so do the challenges and need for better.
International and cross-border transactions in currently centralized banking systems are time consuming and filled with complicated procedures. Bank transfers charge several fees ranging from processing fees to foreign exchange rates.
When the US went through the great recession of 2008, financial structure was affected greatly all over the globe which gave birth to an economic crisis at the hands of failed regulatory system, unruly decision-making and shams. This showed how dangerous and vulnerable centralized authorities can be.
In the current scenario, almost all sectors in the financial world are centralized, with administered gatekeeping of services. Authorities and mediators take control over the user’s access to essentially everything within their range of services, exploiting a notable percentage on every transaction carried out on the platform.Transparent and invariable protocols brought on by DeFi takes away the incompliant centralized control, allowing either an inclusive community of stakeholders or an automated algorithm to work the platform.
The whole idea of a decentralized institution is to create an open and inclusive network. The mechanism is designed to promote a well-adjusted and reasonable steadiness between the stakeholders and the core.Even with DeFi apps that are looked over by an administrator, users are given knowledge of the authoritative roles along with creative access to the smart contract that could counter the privilege.
A decentralized ecosystem uses decentralized networks and open-source software to advance products and services, built on a transparent and reliable blockchain framework and operated on efficient protocols. From tokenization to smart contracts to dApps and exchanges, decentralized finance offers a broad range. Buying and selling, lending and borrowing and all other transactions are carried out on a financial system vacant of central entities.
A dAppenables products and services on a decentralized P2P structure, where the user connects their wallet to the blockchain network to carry out transactions. The issuance of assets, transactions and all processes are operated by the means of smart contracts, completely devoid of third-parties and giving direct asset custody to the user. The smart contacts are utilized in a detailed framework on the blockchain, leaving little to no requirement for human intervention. Inclusivity and access to the app transcends geographical and jurisdictional barriers, forgoing many common restrictive limitations.
Simply put, there is no middleman looking over a user’s assets and transactions on a private ledger, having the authority to pause or approve it.
A decentralized finance, built on blockchain, naturally picks up the advantages the technology generally offers.
Ethreum has been a major driving force in the field, with most dApps with on the platform’s smart contracts. The Merge has uplifted the network for these apps to advance.
Taking a look at the mostly popularly favored DeFi applications,
While there’s a long way to go for DeFi to unfurl its full potential, the future looks promising. A financial technology that is inclusive, transparent and secure? Users are hooked. The global financial market could possibly be looking at a revolution with the decentralized perspective.