Decentralized Finance (DeFi) – what is it?
What is DeFi?
DeFi, in simple terms, refers to a blockchain-based analog of the traditional banking system. DeFi applications provide access to services such as loans, deposits, and additional income opportunities. Users can benefit from transparent and decentralized financial services without intermediaries or commission fees.
What can DeFi developments offer?
Users can utilize the following in the DeFi ecosystem:
- Decentralized exchanges
- Cryptocurrency lending platforms
- Applications for crypto deposits with interest earning capabilities
- Risk insurance applications
What are the advantages of decentralized finance?
DeFi presents a direct competitor to the traditional banking system. Users can opt for crypto loans instead of expensive bank loans. Additional advantages include:
- Availability of blockchain applications 24/7
- Financial transactions completed within minutes
- Low-interest rates and minimal fees for borrowing
- Earning high returns through token staking
These decentralized financial instruments are more efficient compared to traditional banking systems. The cost of service is significantly lower, as the alternative financial system does not require banks or employees. This reduces the credit burden on end-users, providing them with access to finances on more favorable terms.
Disadvantages of DeFi
As the DeFi system is relatively new, errors in smart contracts and network congestion are common causes of incorrect transactions. Further development will make DeFi a fully secure sector, but the developmental stage is always accompanied by some losses for users.