Decentralized Finance [DeFi] In Everybody’s Language

DeFi in a few words

Decentralized Finance or DeFi is about an open source and transparent financial ecosystem, built on blockchain networks. Unlike the banks, DeFi does not have a central authority: the users are in control of their assets and can interact with other users through Decentralized Applications (dApps) and peer-to-peer networks

Advantages of DeFi

The main advantage of DeFi is that everyone with an internet connection has access to it, without going through all the fuss with the banking system. Therefore, brand new markets are created and different products and services can be traded directly between users. Being in control of their funds all the time and working directly with each other, users don’t have to worry about hidden taxes or loosing their money. The data is registered on the blockchain and verified by thousands of nodes worldwide, making it close to impossible for a hacker to steal the money.

Use cases for DeFi

Stablecoins and Banking Services

With the whole blockchain industry getting more attention each day, developers are looking for ways to connect the traditional financial system with the newer one. Stablecoins, a crypto-asset backed by a real world asset, are the perfect bridge between the two financial systems. With the possibility to be transferred anywhere at any time, stablecoins make a safe haven for the sometimes very volatile Cryptocurrency markets.

Furthermore, banking services such as mortgages and insurances could become more accessible if implemented on a blockchain. The fees would decrease, the processes would run faster and risk between the participants would be almost completely eliminated.

Borrowing and Lending

Decentralized borrowing and lending services are built directly on public blockchains, minimizing the potential risk of mistrust. Therefore, the whole process works faster and cheaper, with everyone having access to it.

Decentralized Marketplaces and Wallets

The most popular DeFi applications are by far the Decentralized Exchanges or DEXes. These exchanges allow users to be in full control of their funds, without involving a third party as trustee. Here, users are trading directly with one another, with the help of smart contracts. Another advantage for decentralized exchanges are the very low trading, deposit and withdraw fees.

Trust Wallet went beyond the idea of just being a simple wallet: apart from being secure (users are in full control of their funds, without a third party involved), Trust Wallet also provides a decentralized exchange and a continuously rising number of supported decentralized applications. Therefore, Trust Wallet is an all-in-one, providing a user friendly interface, security, availability, ease of use and very small fees. Definitely a must have app on your phone if you ask me!

DeFi: Risks

  • Funds

Being in full control of their funds, user who misplace their private keys cannot recover their wallets.

  • Performance

Because of the high security, blockchains are usually slower than the financial ecosystem, making sometimes the DeFi applications, built on top of them, slow.

  • User unfriendliness

Without the involvement of a trusted intermediary, users have to through certain processes all by themselves, resulting sometimes in a a bad user experience, if the user is used to relying on a third party.

This is my submission for the Wisdom of the Crowd contest.


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