WHAT IS DEFI AND HOW IS IT REMODELLING THE FINANCE INDUSTRY?
DEFI has been a popular topic for a long time now. When we dive deeper into the concept, it gives us the ability to unveil the potential of DEFI and how it could possibly affect the entire finance industry.
Decentralized Finance (DeFi) has been able to bring sweeping changes to the financial world in recent years. Disintermediation is one of the main pillars of DeFi.
WHAT IS DEFI?
Decentralized finance is a financial system that behaves and functions like a bank but not in the traditional way. It offers financial instruments that do not require any reliance on intermediaries such as Banks or NBFCs.
HOW IS DEFI DIFFERENT FROM TRADITIONAL FINANCE SYSTEM?
Unlike centralized financial services like traditional banking, DeFi companies don’t require intermediaries or custodians to supply services like buying, selling, lending and borrowing of crypto assets. DEFI users can interact directly with the blockchain protocol 0r Defi platforms to execute trades or avail services.
With DEFI, cryptocurrency holders can gain 100% ownership and have complete control over their assets in their wallets. DeFi is on self-regulating computer code called “smart contracts” that runs on a blockchain network. By using smart contracts on a blockchain DEFI is igniting a buzzing craze in the financial industry.
DEFI eliminates manipulation and favoritism from the financial system and gives access to unbanked people. The Defi scheme promotes equal opportunity since projects are financed according to their quality and the quality of execution plans, and not on the basis of other factors induced by middlemen.
Growth can be limited when viable ideas do not receive adequate funding. In this way, DeFi has laid the foundations for cryptocurrency to be able to reach the goal of achieving universal access to a financial system unconstrained by corporations and governments.
DEFI provides transparency in transactions and is extremely robust. There are zero to minimal chances of any fraudulent activities taking place. By eliminating the role of third parties, financial transactions on DEFI are very quick.
The reason behind this effectiveness is the magic of intelligent contracts that automate many of the functionalities in financial services. By giving sole authority to the users and public, DEFI reduces the need for a central authority and decentralizes power.
Reputed financial firms have faced the circumstance of being trapped in the ball game of hacking, frauds, data breaches and errors. However, DEFI overcomes all these obstacles and wins the race when it comes to security and safety.
To exchange value, different financial systems interact with one another and carry out the transaction. In the traditional financial system, the majority of payments infrastructure is interoperable but limited in scope.
There are many positive indicators that DeFi users are reaping the benefits of cross-chain communications and token swaps. Blockchain adopters will leverage the fundamentals of various networks instead of being limited to one ecosystem.
Despite the complexity and steep learning curve, DeFi projects are steadily becoming a lucrative option for SMEs and startups within the financial space around the world. In part because of low entry barriers, DEFIs are providing access to cheaper credit and easier lending and borrowing activities — completely upending the traditional financial landscape.
Blockchain-based Defi platforms provide a solid alternative to traditional financial services, and the sole reason behind their rising popularity is their trustless, immutable, and transparent characteristics.
With just the help of the internet, users can actually participate in this new generation of financial services without the need for centralized permission structures and rent-seeking intermediaries.
In light of the number of innovative Defi Platforms that are already providing value and utility to consumers, blockchain’s impact on finance no longer remains a theoretical concept, but is a very real prospect.
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