What Is Decentralized Finance? A Detailed Guide Part 2 | How to Use in the Real World?
Decentralized finance is easily becoming a favorite for many. It combines Blockchain technology to simplify and decentralize financial transactions. By giving people more control over their finances, DeFi aims to remove the centralized system that banking systems have been using. This provides more room for profits and reduces losses and additional expenses charged by intermediary companies.
DeFi is not only being applied to banking but covers all sorts of transactions between individuals or companies. This includes mortgages and trading assets. With all the many benefits of DeFi, it is easy to understand why many institutions are choosing it over centralized finance. As more technology is being added to the finance industry, the number of companies switching to DeFi will only increase. So what are some of the uses of DeFi? Continue reading to see how to apply this technology in your company.
Uses of DeFi Today
- Simplify transactions
- Currency exchange
- Electronic wallets
- Flash loans
- Stable coins
Uses of DeFi Today
DeFi aims to make life easier. It is easier to make financial transactions that were once deemed complex. DeFi uses Dapps( decentralized apps) and special protocols to run transactions. The main cryptocurrencies used are Ethereum and Bitcoin. Once a Dapp is launched, it is available to everyone. People do not have to wait as they would for centralized finance technology. Here are the top uses for DeFi today.
1. Simplify transactions
DeFi covers all aspects of finance whether it is banking, brokerage, or insurance. This also includes taking loans. The best part is that you incur fewer fees and there are fewer chances of running into losses. Peer-to-peer transactions enable direct payments. Payments are quicker and safer. Also, all transactions are relatively cheaper as there are no additional charges paid to intermediary companies.
This is made possible by smart contracts that automate all processes. All middlemen are removed, which quickens everything. This is more convenient for users. Most banking processes like making payments can be done using decentralized finance. It was created for this main purpose. It provides people with a systematic approach to banking.
2. Currency exchange
Even with the availability of Blockchain technology, many investors have found themselves using centralized finance to exchange cryptocurrencies. Platforms like Coinbase provide a place to exchange cryptocurrencies. However, users don't have control over transactions. Decentralization through DEX( decentralized exchange) gives users more control. It is mostly designed to make transfers between peers faster and less complex.
Peer-to-peer transactions are exchanges between two investors on a Blockchain. Exchanges are made through online marketplaces. These markets are supported by protocols. So all users can sell or buy products directly without going through a third party. Some of the benefits of this form of exchange include:
- Signing up is not required
- Users don't have to confirm their identity
- Withdrawing is free
Examples of marketplaces for DeFi exchanges include IDEX, OpenSea, and Binance DEX.
3. Electronic wallets
DeFi can create electronic wallets. These make it possible for people to make cryptocurrency transfers. E-wallets also give investors access to both cryptocurrency and any apps created on Blockchain technology. People can easily pay for any tech on the Blockchain from their e-wallets.
5. Flash loans
Flash loans are used to both borrow and pay back any amount. It uses cryptocurrency. Individuals that borrow money earn a percentage of interest. This occurs as a result of money being entered into a contract whenever an amount is borrowed. However for this to work, the contract needs to be on Ethereum.
The code generated processes the loan and pays it back. One thing that most customers like about DeFi is that it minimizes losses. If for instance, traction cannot be excited, the money will be returned to the owner. Those making profits do not have to pay any fees.
5. Stable coins
One thing that makes DeFi different from cryptocurrency is stability. Coins in cryptocurrency can be very volatile, making it difficult to make predictions sometimes. DeFi uses stable coins. These incorporate currencies like the US dollar and Euro. These stable coins try to keep the value from changing as quickly as cryptocurrency.
Stable coins can be used when borrowing or lending money. They are also suitable for remittance transactions. These coins have a stable value that doesn't easily fluctuate.
Decentralization of finance in the future. This technology built on the Blockchain aims to give people more control over any banking transactions. DeFi is growing and has more uses. It is predominantly used to perform banking activities. This includes taking loans, insurance, and handling assets. The goal is to make the process less tedious for users while giving them direct access to their assets.
DeFi is also used to provide stable coins which are less volatile. It also uses flash loans that carry fewer losses. Through protocols, users can access various marketplaces where peer-to-peer exchanges are possible. Quickly make payments to others on a Blockchain with e-wallets. As this technology keeps growing there will be more uses.
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