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What is DeFi ?

In simple words, Decentralized Finance (DeFi) is a system by which financial products become available on a decentralised blockchain network for the general public, making them receptive anyone to use, instead of inquiring middlemen like banks or brokerages. Unlike a checking account, a government issued ID or proof of address aren't necessary to use DeFi system. More specifically, DeFi refers to a system by which software written on blockchains makes it possible for buyers, sellers, lenders, and borrowers to interact peer to see or with a strictly software-based middleman instead of a corporation or institution facilitating a transaction.

DeFi draws inspiration from Blockchain, the technology behind the digital currencies like Bitcoin and Ethereum which allows several entities to carry a duplicate of a history of transactions, meaning it isn’t controlled by any central authority.

Bitcoin and plenty of other digital assets stand out from traditional digital payment methods, like those pass Visa and PayPalin this they remove all middlemen from transactions. Once you pay with a Card for coffee at a restaurant, a institution sits between you and also the business, with control over the transaction, retaining the authority to prevent or pause it and record it in its private ledger. With bitcoin, those institutions are cut out of the image.


decentralized finance is the future


Key Features of DeFi


  • Decentralized finance or  just DeFi, aims to use technology to remove intermediaries between parties in a financial transaction.

  • The components of DeFi are digital crypto coins, use cases, and a software stack that enables the development of applications.

  • The DeFi infrastructure and its applications are still in development stage.

Direct buying are not the only type of exchange or contract overseen by large companies; financial products such as loans, betting, insurance and much more are also in their hands. Eliminating  middlemen out from all kinds of activities is one of the primary advantages of DeFi.


Ethereum Applications

Most applications that are supported “DeFi” are built on top of Ethereum, the world’s second-largest cryptocurrency, which sets itself except for the Bitcoin platform therein it’s easier to use to make other varieties of decentralized applications beyond simple transactions. These more complex financial use cases were even highlighted by Ethereum creator Vitalik Buterin back in 2013 within the original Ethereum written report (White paper).

That’s thanks to Ethereum’s platform for smart contracts offers way more flexibility. Ethereum programming languages, like Solidity, are specifically designed for creating and deploying such smart contracts. With smart contracts at the core, dozens of DeFi applications are operating on Ethereum, a number of which are explored below. Ethereum 2.0, upcoming upgrade to Ethereum’s existing network, could give these applications a lift by eliminating Ethereum’s scalability issues. So Ethereum price might get a surge due to DeFi.


DeFi Applications 

  • Stable coins A cryptocurrency that's tied to an asset outside of cryptocurrency to stabilize the price.

  • Decentralized exchanges DEXs are a type of exchange, which connects users directly so they can trade cryptocurrencies with one another without trusting an intermediary with their money.

  • Lending platforms : These platforms use smart contracts to replace intermediaries such as banks that manage lending in the middle.


How do I make money with DeFi ?

Ethereum based DeFi projects has been exploding, with many users reportedly making lots of profit. Using Ethereum-based apps, as mentioned above, helps users to generate “additional income” by lending out their money and generating interest from the loans.  As described above, it's the potential for even larger returns, but with larger risk. It allows for users to leverage the lending aspect of DeFi to place their crypto assets to figure generating the most effective possible returns.

Is investing in DeFi safe?

As you know, investing in any digital asset, it’s risky. Many believe DeFi is that the way forward for finance which investing within the disruptive technology early may lead to massive gains. But it’s difficult for newcomers to separate the nice projects from the bad.

As DeFi has increased in activity and recognition through 2020, many DeFi applications, like meme coin YAM, have crashed and burned, sending the capitalization from $60 million to $0 in 35 minutes. Other DeFi projects, including Hot dog and Pizza, faced the identical fate, and plenty of investors lost plenty of cash.





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