DeFi is an umbrella term for 'peer-to-peer' financial services offered by the blockchain
An acronym for "decentralized finance", DeFi is a commonly used term that covers financial services which are offered on the blockchain. DeFi allows users to be able to do many of the same things which have traditionally only been able to do with banks, such as earn interest, borrow, lend and trade various assets.
Why is DeFi important?
DeFi in essence replaces traditional lending. It performs many of the same functions as traditional banks within the blockchain, without having to deal with third parties offering a more open, free, and fair financial market that is accessible to anyone with an internet connection. DeFi is an important component of Web 3.0.
How Does DeFi work?
DeFi is accessed through what is known as dApps ("decentralized apps") and some of the ways in which DeFi is being used are:
- Lending: This is done by offering liquidity to the market and in return earning a percentage for each transaction. This has become a very lucrative form of "passive income" for many investors.
- Trading: DeFi exchanges offer users "peer-to-peer" trades between crypto assets.
- Staking: Much the same way a traditional bank account offers an interest rate, by "staking" your crypto assets many investors are earning far in excess of what they would earn from a traditional bank.
What are the Benefits of DeFi?
"Decentralized finance" offers many benefits when compared to traditional finance. These include:
- Permissionless: Non-exclusive. Every person will be able to participate in DeFi
- Anonymous: Web3.0. Personal details are not required to access DeFi features.
- Fast: From getting access to DeFi products and services to receiving payments, it's almost instant.
- Transparent: All transactions are available on the public blockchain.
The Future is DeFi
The future of finance is within DeFi. DeFi functions within the cryptocurrency space and offers many advantages which the traditional financial system is not able to do, from almost instant payments to full transparency of transactions and true "peer-to-peer" transactions. This new system of finance will be the future of finance.