DeFi is the abbreviation of Decentralized Finance, a term that encompasses a series of financial applications in cryptocurrency or blockchain aimed at revolutionizing financial intermediaries and is that it is inspired by the blockchain, the technology behind digital currency. bitcoin, which allows multiple entities to have a copy of a transaction history, meaning that it is not controlled by a single central source. This is important because centralized financial systems can control all aspects of transactions.
DeFi aims to eliminate any type of centralization and, therefore, an intermediary between a user and a service. This means goodbye to banks and other economic entities when requesting a loan, saving money, taking out insurance, investing in funds or any other related action. Not only that, but DeFi also eliminates the need to use IDs, account or social security numbers, etc.
Most DeFi applications take place on the Ethereum network, whose smart contracts make it an ideal network for this type of finance. In fact, it is something that was pointed out in the Ethereum white paper, published in 2013.
The strength of this is that it offers people control of their own assets. Although many banks and new age fintech companies promise to provide more control to users, in reality, they still manage your funds. DeFi’s goal is to give you full control of your assets – it’s all achieved from decentralization and blockchain technology. Also, many financial app developers are adopting open source protocols to trade through decentralized exchanges.
So far, all the contracts made in DeFi are worth approximately $ 41 billion. Although, as with market capitalization, this does not mean that there is liquidity with that value. At the moment, most decentralized finances take place in the form of DEX or decentralized exchanges, which are platforms in which users can exchange one crypto for another without registering.
Another of its most frequent uses are the so-called stablecoins, which are cryptocurrencies linked to real currencies such as the dollar so that the price does not vary so much, which gives certain stability to operations. However, the DeFi are far from perfect. Being something new, they still contain bugs and security flaws that can cost their users dearly. Hacks or rug pulls, in which all liquidity is withdrawn from a platform and users are left unable to do anything, are not entirely uncommon. And like everything related to the crypto world, investing in DeFi is something quite risky but of course everything depends on yourself.
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