DeFi: Trend or Future?
The emergence of blockchain provoked the development and launching of many technologies that came in handy in numerous areas such as financial transactions, banking, cybersecurity, logistics, etc. Once smart contracts for ICOs caused a furor. For a long time, this way of collecting money remained the main advantage of blockchain. Nowadays a new revolution called decentralized finance (DeFi) is started. This article is dedicated to the DeFi phenomenon in the crypto-currency market, its advantages, and disadvantages.
First of all, DeFi projects are considered one of the strongest and most popular sectors of the crypto-currency market. For a long time, the crypto-industry has been distinguished by different segments, such as blockchain technology, stablecoins, non-fungible tokens, prediction markets, decentralized autonomous organizations (DAOs), etc. In the summer of 2020, a new industry of decentralized finance (DeFi) became a trend and gained popularity among crypto-enthusiasts. Since DeFi includes apps, exchange platforms, loan granting, and opening deposits services, it facilitates the management of the finances. In 2020, DeFi total capitalization rose to $92 billion.
DeFi is open-code financial instruments, services, and applications based on blockchain technology. The main goal of this technology was the possibility to become an alternative to the banking sector with strong regulation and replace it with digital nature. Moreover, prospective DeFi projects use open-source software to provide financial services transparently and anonymously without intermediaries and what is more important, without any borders. Decentralized finance projects operate to make the use of financial services more democratic and include a vast number of components ranging from data management to insurance, credit, and managing stablecoins.
Further, many analysts consider DeFi quite a democratic system that eliminates the necessity of regulation by the central body and manual decision-making, when it comes to credit granting for example. Also, DeFi is widely known for its high transaction speed, using one of the blockchain advantages. Thus, financial operations in the system take seconds compared to hours or even days of waiting in a centralized system. Important to note that profits are distributed among all users who invest their money to make transactions on the platform. This factor can be considered a significant benefit since all the money in DeFi belongs to the clients, preventing the possibility to limit access to the wallets as only the clients have keys to them. The blockchain technology basis and absence of a central structure make it impossible to hack into the system and manipulate the finances.
However, it is claimed that DeFi could become not only an alternative to the financial sector in the future but also a complement to banking services. Besides, it requires a lot of effort by developers and serious technical improvements to provide high-security services. Nowadays we can observe in real-time the emergence of a completely new global, flexible and transparent financial structure. New DeFi projects appear almost every day, but of course, not all of them succeed. Before investing in unfamiliar projects, we recommend studying them thoroughly.
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Valentina BEREZA, Team bit4you