What is DeFi (Decentralized Finance)? A Beginner’s Guide 2021

What is DeFi (Decentralized Finance)? A Beginner’s Guide 2021

The world economy is moving towards digitalization, Every aspect of life in a digital manner. Moreover, cryptocurrency as digital currency widely adopted in the global business peoples due to its efficiency, and with advancing digital exchanges lead to various Financial systems. Cryptocurrency being adopted widely among businesses, and it is revolutionizing the Financial sectors.

Let us discuss the current trends and emerging trends in the Financial sectors,

What is Traditional Finance?

We all Know that Traditional finance is centralized and central control over the financial transactions. That central control authority provides the regular currency, and that makes the economy and used for all transactions over the government and banks. This central authority has the power to handle and regulate the flow and supply of currencies in the market resides.

They control all our assets with the help of various financial organizations like the bank where we have held our assets for high returns. Traditional transactions like savings and checking accounts, loans, asset trading, insurance, and much more. However, in Traditional finance each country has various regulations according to their economy, whether it is personal, customer, and corporate all under the central control. 

In simple words, the traditional Financial systems are

  • Centralized
  • Regulated
  • Time-Consuming
  • Tedious
  • Lack of transparency

What is Decentralised Finance (DeFi)?

Decentralized finance is an open financial system substitute for the traditional bank services with Blockchain on a decentralized network. Blockchain-based financial projects came unitedly on the aim of building an independent, secure, and open financial system. It developed with immutable blockchain platforms like Ethereum, EOS & Tron and decentralization over the financial sector and, it includes digital assets, protocols, smart contracts, and DApps over the Blockchain platform. 

DeFi leverages a set of progressive, agile tools to give control to users. The fact that the new trend offers extra functionality in addition to reducing operational risks makes it an ideal replacement for the current financial system.

Advantages of Defi 

  • Permissionless
  • No involvement of Central Entity
  • High Liquidity
  • Borderless
  • Provides full control over funds
  • Time-Saving
  • Cost-Effective
  • Restrict the fraudulent activities

Decentralized Finance vs. Traditional Finance

Decentralized finance vs. traditional finance is a hot topic. They differ in various ways like

  • On decentralized finance, a public blockchain acts as the trusted origin, directing all transactions in the financial sector on the distributed ledger. In contrast, traditional finance public governance includes legislation and licensed financial organizations, which serve as the trusted source
  • On decentralized finance is open source and transparent over the blockchain in contrast to the traditional finance, it lay over the central control and not transparent.
  • The use of digital ledger technologies, such as Ripple’s XRapid has produced for people to obtain full charge of their assets and their transaction data when transacting in the global financial system. In contrast, traditional finance where our assets are kept to the financial organization has full authority over the assets and not transparent.

Ultimately, Defi makes it likely for developers to grow with financial means of serving digital assets without constraint like traditional finance. Tokenization claim as one of the ways providing loans to collateral or debt duties as reality and efficient in the issuance of loans, payments, and transparency on the transaction.

The Key Benefits of Decentralized Finance (Defi)

Defi is widely spread over the world business as it has enormous benefits as given below :

Open-Source:

Defi application is open source and, coding is public, validate its functionality, security, and capacities. Open source code is stable and secure, easy for community interaction than the Private code. They are easy to develop and enhance further through open source.

Transparency:

Defi gives a high level of transparency as it lay on the Ethereum Blockchain and transactions are available publicly. They differ from a traditional bank account as they are not bound to anyone directly, transactions associated with a public address. 

On the blockchain, there is no need for background details like name and Identity, whereas it uses only the public address given on the network platform with transaction details.

Global Audience:

DApps serve an extension in the way developers envision financial sectors. It is open to the global people where anyone from anywhere can take part in DeFi platforms. It requires the only smartphone to take part in the DeFi network. DeFi doesn't require any additional requirement for the financial transaction on the blockchain and, like other traditional banks, and banks require certain documents as per the legislation.

Permissionless:

The DeFi sector doesn't need any central control like traditional, anyone can build a DeFi app, and it is available globally.  DeFi doesn't need any reference and approval from central control. While in traditional Finance it requires third party approval like banks.

Interoperability:

DeFi application is interoperable, ensures that more space for developers to continue further in their work on the blockchain platform. If they build a DeFi app in ethereum can transfer to another blockchain platform with the feature of interoperability.

Flexibility:

DeFi application is an open-source, where developers can utilize the flexibility in the platforms. Users can integrate the other application on the DeFi sector.

Top Exclusive Decentralized Finance Apps

MakerDAO:

Maker ranked amid the peak of the Ethereum DeFi projects. MakerDAO projects that hold around 1% of the total funds of Ethereum blockchain.

Pool Together:

Pool together enable you to pool your funds associate either DAI or USDC and later for each pool crypto. It is like a game where you will get a ticket for each pool that can earn you tokens if you win. 

Dharma:

Dharmais another DeFi App that is on the list of best DeFi crypto, which gives a crypto-backed money lending platform, and It is to displace the traditional lending mechanism with the blockchain-based tool. It aids peer-to-peer lending.

Colendi:

The Colendi app is built to give a solution to the unbanked population of third world countries. It developed the decentralized credit scoring system that allows anyone to gain micro-credits.

Compound:

Compound Apps aids users with a simple borrowing method with its liquidity tool. Users can lend their money by offering to the pool and can earn interest on it. As it is based on a liquidity tool, it enables simple loans to people and furnishes a chance to get profits to lenders.

Augur:

Augur a prediction-based canon, and People can use it on desktop. That is to make bets on the events of the future related to any field like sports, politics, financial instruments, and many more.

Constant:

Constant is one of the best DeFi crypto apps as it gives the peer to peer lending platform to both buyers and sellers. Seller or lenders can fix their interest rates, and buyers or borrowers require to transfer the collateral to borrow the funds.

Polymath:

Polymath app is the program to develop, issue, and secure digital securities on the Blockchain. It also provides outstanding peculiarities to tokenize the assets or create brand-new security tokens. 

Uniswap:

The Uniswap platform launched a new mechanism known as Automated Market Making. This protocol enables near-instant settlement between parties.

Order set to unite trades as close to the current market value as possible. You can even lend out your crypto and earn some interest via the platform Pooling feature. 

Usecase of DeFi

Banking services:

DecentralizedFinance is progressing to rule out Traditional Finance by eliminating geographical barriers. DecentralizedFinance, anyone can take part in the transaction, and even from a remote area with the help of smartphones.

Addressing global financial issues:

On the 2008 Financial Crisis, many people lost their wealth as a good number of banks went beneath. Due to these types of economic crises, people are expecting new technology advancement to ensure their assets. DecentralizedFinance is widely adopted, and due to the reliability of the DApps to bypassing issues related to hyperinflation in case of unexpected economic crises.

Circumventing Licensing and Constraints:

DecentralizedFinance maintains to grow as it allows the people to bypass the constraints imposed by oppressive governments. There are restrictions on some nations to transact over the borders but incase of DeFi, it is easy eliminating geographical barriers. DeFi is exclusive and adopted widely due to its unrestricted access to the global financial service.

Financial Creativity:

DeFi is a reliable tool for advancing the development of financial products that were under the domain of large licensed companies in the past. Financial derivatives, as well as futures and swaps products built by digital ledger technology, will be in real soon, given the quantity of discovery encompassing digital ledger technologies.

Osiz Technologies - A Leading Decentralized Finance (DeFi) Development Company

Osiz Technologies -Decentralized Finance (DeFi) Development Services and Solutions has 11+ years of experience in decentralized platform development, A technically proficient team of blockchain architects and engineers, the Ability to build a DeFi ecosystem, Timely delivery, and provide Post-sale technical support to our clients.

Our Complete DeFi Development Services which includes:

  1. DeFi Lending & Borrowing platform
  2. DeFi Smart Contract Development
  3. DeFi Dapps Development
  4. Decentralized Exchange
  5. Asset Tokenization & Issuance
  6. DeFi wallet development
  7. Stable Coins
  8. Market Prediction
  9. Insurance

Need to revamp your tradtional business into decentralized ecosystem? or looking for the complete DeFi development solutions which helps to build your DeFi protocols like yearn.finance, Uniswap? Osiz is here to help you build a reliable and flexible decentralized protocol with quick and effective DeFi development.

Book a Free Consultation!

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