What is Decentralized Finance (DeFi) ?
What is DeFi?
DeFi or Decentralized Finance is nothing but an ecosystem of financial decentralized applications or dApps. The only difference between the traditional financial applications and DeFi applications is the platform where they are built. DeFi applications are deployed on top of the blockchain networks. In a decentralized environment, individuals and institutions can access financial services in a transparent manner without any intermediaries.
Since built on the blockchain, DeFi applications inherit the desirable characteristics of the blockchain. DeFi applications are trustless and permissionless. In layman’s terms, DeFi applications are open source and transparent, which can be easily accessed by anyone due to the lack of centralized governing authority. The decentralized applications (Dapps) function based on a peer-to-peer (P2P) mechanism, where the application users can enjoy complete control over their assets and can interact with the application without having to place trust in anyone.
Why is DeFi so popular?
Without a doubt, DeFi has been facilitating financial freedom around the world. It offers tools for investors to protect their wealth from tough capital controls. Besides, DeFi makes the remittance process faster, simpler and more cost-effective, without KYC (Know Your Customer).
Since there is no restriction related to wealth, social status or religion, almost everyone can take part in DeFi. This is definitely an advantage for those who can not get access to traditional financial services because of the lack of formal documentation or the absence of such services in that country.
Another thing that makes DeFi so popular is the rapid rise of stablecoins. Stablecoins are cryptocurrencies that attempt to peg their market value to some external reference. One problem with stablecoins that they are not always stable.
DeFi is the hottest trend right now in the crypto and blockchain arena. DeFi will shift the power from centralized organizations to the individual. This is where the success of finance and investment lies. The mainstream adoption of DeFi will undoubtedly disrupt the way in which traditional finance work and create an efficient system.