A Beginner's Guide to Decentralized Finance (DeFi)
Introduction to Defi
Decentralized finance, also known as DeFi, is a fast-growing sector of the cryptocurrency industry. DeFi has seen rapid growth in 2020. In the present time, the market of DeFi is trending, and all people are looking at DeFi products to decentralize the digital economic system in a good sense. In other words, DeFi is a combination of old banking services and the latest decentralized technologies like decentralized apps (dApps) and cryptocurrencies.
How does DeFi work?
Among the most popular DeFi projects are lending protocols Aave, Maker and Compound. These are protocols that let you borrow cryptocurrencies and often in large amounts if you can prove you can pay back the loan in a single transaction. You can also earn interest from lending out cryptocurrencies.
Then there’s KingSwap, the newest DeFi liquidity pool platform that is an improvement over, and evolution of UniSwap, a decentralized exchange that lets you trade any Ethereum-based token you like, or earn money if you add liquidity to that token’s market.
KingSwap provides legitimacy with a credible team that’s backed by compliance with the laws of a strong regulator. This is important to build trust and credibility, as most DeFi projects lack a legal structure which is a real cause for concern, as we’ve seen founders flee soon after launching projects. Users of KingSwap will enjoy the benefits of DEX while keeping the project (a regulated entity) that issues your hard-earned $KING accountable.
Advantages of DeFi
DeFi has been the talk of the town for the incredible advantages it can add to the current economic system. More decentralization will mean a user will enjoy greater freedom. The accessibility of funds and trade ability between users will not be dependent on any third party. Above all, decentralized economic facilities will bring a greater amount of transparency as compared to centralized authorities.
Below are some further advantages;
Everything is online and digital
Full control over savings
Offered Use Cases by DeFi
Monetary Banking Services
For DeFi apps, monetary banking services are a manifest use case. It can contain the issuance of mortgages, Stablecoins, and insurance. With the Blockchain Development, there is an enhanced focus on the generation of Stablecoins. It can be called a kind of crypto asset that is pinned usually to a real-world asset but still can be shifted with relative ease digitally. Due to the fluctuation in cryptocurrency prices at times, decentralized stablecoins could be accepted for daily use the same as digital cash that is not issued and analyzed by central governance.
Lending and Borrowing
These open lending protocols are the most famous kinds of apps that are included in the DeFi ecosystem. This decentralized, open lending system has various benefits over the traditional credit system. It contains instant transaction settlement, no credit checks, the ability to collateralize the digital aspects, and possible standardization shortly.
Since these borrowing services are developed on the public blockchain, they decrease the amount of loyalty needed and have surety about crypto trading and its verification methods. Blockchain's lending marketplaces decrease the counterparty risk, make the lending faster and cheaper, and also available to more and more people.
This app category is a little bit complex to assess as it is the part of DeFi to provide space for financial innovation. Decentralized exchanges permit the users to trade digital assets without requiring a reliable intermediary to save their funds. Trades are made between the user wallets directly with the assistance of smart contracts. This also requires less maintenance work and has low trading fees rather than centralized exchanges.
Importance of Smart Contracts in DeFi
Most of the existing and potential apps of DeFi contain the development and execution of smart contracts. On the other hand, a common contract utilizes the legal terminology to define the relationship terms between the entities entering the contract. These terms are written in entire computer code, and smart contracts have different abilities to fulfil the terms by applying computer code. Using these smart contracts will be easier, faster, and decreases risk for both the parties.