One of the leading trends in this industry now is DeFi (decentralized finance). Is a set of services and applications developed using blockchain, cryptocurrencies / tokens and smart contracts. These services are integrated into a single network, offering users services that are usually provided by banks and other financial institutions.
In simple terms, this is a kind of alternative banking sector, the services of which can be used by people who do not want / do not have the opportunity to deal with traditional financial institutions.
DeFi allows you to:
- Expand access to financial instruments in countries with a weakly developed banking sector;
- Create a truly decentralized marketplace, where the cost of services will not be determined by the will of the government or company leaders;
- Receive passive income from cryptocurrency assets;
- Significantly reduce commission fees for transfers, loans, deposits.
DeFi applications must comply with the following principles:
- Accessibility for everyone with an internet connection;
- Transparency of work for all participants while maintaining individual confidentiality;
- Open source and interoperability with other decentralized projects.
At the moment, most DeFi services issue credit loans secured by cryptocurrency, accept deposits in cryptocurrency, or create decentralized platforms for direct lending (you give me – I tell you). For transactions, as a rule, Ethereum is used and, less often, Bitcoin.
Since Ethereum has become the main DeFi cryptocurrency, the popularity of the industry is determined by the number of blocked coins (Ethereum pledged as collateral is blocked).
The emergence of the DeFi sector is a huge leap forward for cryptocurrencies. Traditional financial institutions have finally gotten competitors to undermine their monopoly on cash flow control.
Decentralized finance is useful for both users:
- Services can be obtained bypassing the bank and even where there is simply no bank;
- Almost everyone can bring their own asset to the market;
- Payments are no longer processed for several days;
- Commission and interest rates are several orders of magnitude lower;
- Now you can make money on cryptocurrency not only by trading.
So for the cryptocurrency industry:
- Coins have received new uses, which increase their value for holders;
- DeFi services simplify the interaction between different coins and blockchains, which means they erase technical barriers;
- The ability to get a cheap loan, transfer funds to the other pole of the planet, or create your own digital asset encourages investing in cryptocurrencies.
Employer of ICOholder said:
DeFi is punching a new direction for cryptocurrencies:
Is now not just a risky investment in which you can invest in order to make quick money, but also a whole set of instruments for financial transactions, which will eventually expand to the size of the traditional financial sector.
How DeFi works (on the example of projects that are used for loans in cryptocurrency).
What should be done:
- Find out the exchange rate of the desired token for a collateralized coin (in most cases, this is Ethereum);
- Make a security deposit;
- Get DeFi tokens that can be exchanged for fiat;
- Return the taken amount of DeFi tokens, which will then be burned by the algorithm;
- Collateral coins are returned to the wallet.
Decentralized finance cannot yet boast of such a variety of services as the traditional market, but even those that exist significantly expand the possibilities of cryptocurrency holders.