DeFi is an abbreviation for Decentralized Finance, which refers to the financial system built and developed using Blockchain technology.
All traditional finance services are available in decentralized finance; the only difference is that they are managed and operated by blockchain technology rather than third parties (banks, governments, and bookmakers) as in the traditional market. Decentralization is the most important aspect of DeFi: All data is encrypted and distributed; everyone is responsible for their own assets and transactions; there is no centralized bookmaker to manage your assets.
DeFi has the following characteristics as a result of its decentralization:
- Permissionless (no permission required): Everyone has equal access to and use of DeFi, without the need for complicated conditions such as traditional services, identity verification, or asset custody.
- Transparency: All system activities are recorded and made public. Because all transactions are recorded on the blockchain, no individual has access to the information (distributed ledger).
- Absolute security: No one can compromise the personal information or transaction details of others.
Practical applications of DeFi
Because DeFi is a financial platform, it requires the existence of currencies for the financial system to function. Cryptocurrencies serve as the operating currency format in DeFi, facilitating all financial transactions such as buying and selling, borrowing and lending, insurance, derivatives, and so on.
Cryptocurrencies come in a variety of forms. Each cryptocurrency will serve a different purpose and have a different value, and it will be able to be traded on cryptocurrency exchanges. Bitcoin was the first cryptocurrency to be created, and its market capitalization now ranges into trillions of dollars.
2. Decentralized Exchange
One of the most important components of DeFi is the DEX (decentralized exchange).
Rather than having a bookie act as an intermediary to help you make transactions and manage all of your assets (as in traditional finance), a DEX allows you to trade with other users peer-to-peer. Because the DEX does not hold your assets, transactions are validated by the blockchain. Your money does not need to be managed centrally, as it is with banks or traditional exchanges, and you can store or manage your own assets in your personal wallet.
3. Lending & Borrowing
DeFi enables users to borrow and lend cryptocurrencies in a decentralized manner, eliminating the need for third-party intermediaries. In contrast to the traditional market, you do not require complicated verification or collateral. Because these loan/lending projects are authenticated by codes rather than paper contracts, they can automate parameters such as loan limits and interest rates, as well as set up automatic liquidation if the balance falls below the pre-set collateral rate.
In addition to the popular applications mentioned above, any traditional finance activity, such as payments, credit, currency, insurance, synthetic assets, and so on, can function on DeFi.
Popular DeFi platforms:
- 1inch (1INCH): An intermediary platform linked to numerous exchanges, that allows investors’ buy and sell orders to be divided among various exchanges to obtain the best price and minimize slippage.
- Dego Finance (DEGO): A decentralized finance project that was launched in September 2020 as an open and independent ecosystem where anyone can issue, mine, auction, and conduct NFT transactions.
- THORChain (RUNE): A decentralized liquidity platform that allows users to easily swap one asset for another across multiple networks.
- Yearn.Finance (YFI): Acts as a “gateway” to a variety of other DeFi products. Yearn.Finance’s goal is to provide a suite of tools that simplify the DeFi investment process while providing investors with the highest possible return.
Along with a wide range of other potential DeFi assets.
The ONUS application currently includes a #DeFi category, making it simple to look up assets, monitor market fluctuations, and conduct buy and sell transactions.