Decentralized Finance (DeFi) for Beginner, Advantages of DeFi and DeFi Offer

In this article, the interesting topic is about DeFi (Decentralized Finance). Then, will be explained a very complex word called DeFi (Decentralized Finance). DeFi or known as Decentralized Finance is a relatively new financial system.

DeFi is “open to anyone” or anyone can be involved in this financials system. It also does not require an intermediary or someone in charge in the system. To develop the DeFi system - Decentralized Finance.

We need three essential elements; The first - Cryptography, Second - Blockchain, The third - Smart Contract. For those who do not understand Smart Contract. You can refer to the previous article entitled; what is smart contract in blockchain technology of Ethereum and How do Smart Contracts Work.

If you look at it today, all our financial system are centralized or known as Centralized Finance, such as banks, stock market, insurance and many more. This centralized finance system controlled by the person in charge within the organization. The system is also vulnerable to risks, such as fraud, miss-management and corruption.

Basically, DeFi is a decentralized financial system. There are no intermediaries or no Central Authorities controlling it. It uses decentralized assets such a cryptocurrency, which it can be programmed automatically. This allowed the creation of DEX (Decentralized Exchange), Lending and Borrowing services.

Insurance Company, Stable Coins, Yield Farming and Liquidity Pool, as well as many other financial services. That do not have an owner or are controlled by the person in charge.

The various products involved in DeFi are also collectively referred as “open finance”. Since it’s an ecosystem where blockchain, digital assets, open protocols are integrated with conventional Financial structures.

Are you still confused?. Don’t worry, next we will try to explain more about DeFi. To develop the DeFi system, we need infrastructure for programming and running decentralized services.

We are very lucky that Ethereum already has a “Do-It-Yourself” or DIY Platform to write decentralized programs or better known as a Dapps. By using Ethereum, we can write automatic computer code or known as Smart Contract.

It is used or coded to write our future DeFi Financial platform. This means we can specify any rules to each service that will be created in the application. Once we deploy these rules in the Ethereum Network we no longer have control over those rules.

This means it is immutable ore cannot be change. Once we have a system in place, like Ethereum to creating Decentralize apps (Dapps). To develop we can starts building our decentralized financial system.

What does DeFi offer?

Anyway, DeFi offers to control your own assets or funds. While most new-age banks and Fintech Firms promise that control will be given more to users. The reality is, you still trust them to manage your assets and funds.

Object DeFi is to ensure you have full control over your own assets / funds, and it can implemented because it is using Blockchain technology and decentralized.

In DeFi, anyone can Store, Trade and Invest using blockchain technology safely and receive higher returns than the Traditional Financial System (CeFi). Since there are no middlemen or intermediaries handling your assets, then you will be able to fully control your assets or funds. This is not a financial advice, trade at your own risk!

Recently, DeFi has become one of the hot topics of conversation right now. More decentralized system mean users also do not have to rely on intermediaries to manage their funds and assets. Regardless, the DeFi system will be able to provide more transparency compared to the centralized system or known as CeFi.

Among the advantages of DeFi are:

Security - More secured system
Everything is online and digital,
No boundaries - Borderless
Everyone is accepted or everyone is welcome to use the system.
Open Source Code - for Developers
And Decentralized.

In fact, the DeFi market is very small compared to existing traditional finance. DeFi has risen successfully since in 2020 year, with so many project developments and financial Dapps, which is really not centralized or decentralized where conventional financial services interact with digital assets and blockchain technology.

We do not know, maybe in the next few years, the advantages of DeFi will make the global financial system will change from CeFi to DeFi.

Reference: https://youtu.be/10o20Geh5Ug