101: What is De-Fi?

What is Defi?

De-fi is short for Decentralized Finance. They are financial services built on top of a blockchain and are controlled by no single authority or person. De-fi makes financial services less time-consuming and more secure. With absolutely no extra layer in between, international transactions are faster than ever. De-fi enables people to have control over their money without a bank account.

Photo by Austin Distel on Unsplash

These services are majorly built over Ethereum blockchain due to the programmable characteristic. Decentralized financial services focus on inclusion irrespective of the person enrolled with formal financial services such as a bank. This feature makes Defi capable of disrupting the traditional financial systems in the future.

Why De-fi?

The centralized financial system is prone to mismanagement, fraud, and corruption. Each service is controlled by a person or authority which leaves scope for blunders. Haven’t we all heard of banks giving out ‘Bad Loans’!! Taking into consideration the scenarios of bad loans and banks committing fraud, decentralized financial services are the future.

De-Fi is controlled by no person or authority and everything happening is secure, transparent, and without any physical infrastructure in place. Sounds strange!? Defi services provide the flexibility to make transactions irrespective of time and geographical location. One might be sitting in India and sending money to the USA without interference from any bank, government, or external authorities. These transactions are secure and recorded on blockchain where they can’t be manipulated to commit any fraud.

Not just transactions but also decentralized loans and insurances are some possible services that we might see in the future. A decentralized loan would be much safer and easier to get unlike the loans provided by traditional banks involving a ton of paperwork and high-interest rate. Decentralized insurance would be found much more convenient as the insurance money would be easier to access and processing time would be cut down. For instance, for a health claim to approve, the processing time may cause a delay in treatment which can be prevented by the Defi services.

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How to build a De-Fi System?

Decentralized Infrastructure- Ethereum

To program these services, we need a decentralized infrastructure such as Ethereum. Ethereum is a DIY decentralized platform for Decentralized Applications (Dapps). With the help of Ethereum, we can write automated code, AKA smart contracts. Read more about Ethereum.

Once we code these financial services with the help of Ethereum and launch those on the Ethereum network, they are no longer can be controlled by us. They become immutable which means they can’t be changed easily.

Decentralized Currency- StableCoins

Once we program these services, we would need money to build the system, while Bitcoin is the famous crypto that we all know, it is not programmable and possesses limited functionality. This is when STABLE COINS comes into place. Stable coins are cryptocurrencies that are pegged to a fiat currency to reduce the volatile nature of the crypto. Read more Stablecoins

Decentralized Services

Decentralized Exchanges- Buy, Sell, or Trade Cryptocurrencies

The exchanges connect the buyers and the sellers in the crypto-space. This is a place where P2P transactions take place between the buyers and the seller without depending on a ledger for trade matching. Some of the famous decentralized exchanges in India are Zerion, PancakeSwap, and 1inch. (edited)

Decentralized Money Markets- Connect Borrowers with Lenders

Quite like traditional banking where borrowers take money from the bank, decentralized money markets connect the lenders and the borrowers directly eliminating the middlemen. It can be rephrased that you get the same interest on your lent token as the borrowers are paying back.

Decentralized Insurance- Platform to secure your assets

In case you lose your crypto assets, protocols like Etherisc are built to protect your crypto wallets from any mishaps. Not just crypto wallets but decentralized insurances are evolving to secure physical assets as well. Etherisc, for instance, is making insurance against flight delays, hurricanes, and even for a community.

Risks Associated

De-Fi is still in its infancy stage- You never what goes wrong

It is no doubt that the upcoming technology is still in its early years of development. People prefer to trust banks for loans even when the rate of interest is across the charts. This is mainly because banks have gained the people’s trust over years. Predicting the future today won’t be the best thing but according to experts, de-fi projects may disrupt the traditional banking services in coming decades; but who has seen the future?

Some services aren’t completely decentralized.

The world still needs some control and not all the services are decentralized. Some services still require some centralized management. They might not be controlled but are most likely to be regulated by some authority to ensure the law and order.

You might want to do your research before jumping into the De-Fi System.

Decentralized Finance is a part of the crypto-space which has its twists and turns, researching about the project before investing or using is the best thing to do. Provided that these things can be pretty tricky and hard to understand, we at Moving make crypto super easy and accessible.

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