Updated: Dec 7, 2020
As an increasing number of people are driving into cryptocurrency and adopting decentralized finance systems, the term DeFi is being heard time and again. So, what is DeFi? What are its advantages, and how does it work? What are some examples of DeFi?
In this post, we’re going to explore DeFi in detail and answer the many questions surrounding decentralized finance so that you know all that you need before getting into cryptocurrency decentralized financing. Let’s begin!
What is DeFi?
DeFi is a broad, overarching title encompassing all the services and technologies provided within the field of decentralized financing. These services can include DEXs (decentralized exchanges), decentralized insurance organizations, crypto wallets, stablecoins, among others.
What makes DeFi decentralized is its foundation that implements the Blockchain architecture. This means thousands or millions of nodes across the globe maintain a shared ledger of all transactions. Thereby the ledger isn’t “centralized” within, say, a financial organization such as Visa.
In general, technologies stemming from Ethereum identify themselves as DeFi, although by definition, any financial service or tech that implements a decentralized architecture can be described as Defi.
What are the Advantages of DeFi?
Ever since their evolution, financial systems function entirely over intermediaries. If you want to transfer money from your account to another, you use payment systems such as Mastercard.
These parties have total control over the transaction. They can choose to stop or hold your transaction or even list it in their private entries if they so choose. They also charge on transactions, and the transactor has to abide by the terms and conditions.
This creates a system where the payer and the receiver need to place faith in a middleman and hope nothing goes south.
However, with decentralized finance, the intermediaries are abolished. The power is in the transactor’s hand. This is enabled by blockchain architecture and infrastructures such as Ethereum where nodes across the globe maintain a shared ledger, which means no single party can tamper with, stop, or pause the transaction.
Defi makes financing more transparent, reliable, interoperable thus liberating the financial system of intermediaries and their conditions on your payment.
Some Examples of DeFi
Examples and use cases for DeFi are many. However, some of the most prominent and implemented DeFi services include NFT trade swaps, cryptocurrency trade, digital exchanges, digital wallets, crypto to fiat conversions, decentralized money lending, among many others.
A great example of a DeFi project is KingSwap, an automated liquidity provision on Ethereum. It allows users to make NFT trade swaps, perform off-ramp fiat-crypto conversions, and trade cryptocurrency. Kingswap’s crypto token is called $KING, which is backed on the Ethereum infrastructure. It is an eminent showcase of DeFi technologies.
There you have it! A detailed look into what DeFi is, its advantages, a glance over how DeFi works, and some great examples of DeFi services and technologies.
We hope you’ve found this post informative and enjoyable. Let us know what you think in the comments!