What Is DeFi (Decentralized Finance)?

 

The information you need to know about the general DeFi given to decentralized financial transactions, consisting of the words decentralized and finance, is in our article.

 

Table of Contents

What Is DeFi (Decentralized Finance)?

For What Purpose Did DeFi Emerge?

What is the DeFi Difference?

What is the Advantage of DeFi Systems?

What are DeFi Usage Areas?

What Are the Disadvantages of DeFi?

 

DeFi is the general name given to decentralized financial transactions consisting of the words decentralized and finance. DeFi is the name given to financial structures that are not dependent on any center or authority. Systems that are decentralized and lacking decision-making authorities, such as Bitcoin and Ethereum, are ideal examples of DeFi. However, since financial instruments are not limited to sending and receiving money, it would be correct to bring more advanced financial functions to mind when DeFi is mentioned. These include borrowing, lending, decentralized stock market, insurance, shopping, marketplace, and the like. For those who enable such more advanced features, Compound (COMP), Kyber Network (KNC), 0x (ZRX), Bancor (BNT), Synthetix Network Token (SNX), Maker (MKR), Uniswap (UNI), and Aave, which have tokens on our exchange (LEND) can be counted.

 

DeFi structures must somehow have reassuring elements to their users. Although a decentralized structure sounds interesting, it can also be used for malicious purposes. Bitcoin DeFi structure is secured with an unbreakable and unchangeable mathematical formula. All DeFi systems must have a cause-and-effect relationship. The transactions that can be made are clear and it is clear under which conditions and which transactions will be made. Therefore, smart contracts, decentralized applications, and consensus protocols have an important place in DeFi systems.

 

For What Purpose Did DeFi Emerge?

 

DeFi was launched to build a more democratic financial system after cryptocurrencies emerged for freedom. Another most important purpose of DeFi systems is to enable people who do not have access to traditional financial systems to do their financial work. About 1.7 billion people around the world do not have access to the traditional financial system, namely banking transactions. DeFi systems aim to reach these people, whom the current financial system cannot reach. Although there are physical barriers to accessing banking systems, people's distrust of the central banks is important.

 

What is the DeFi Difference?

 

DeFi ensures that people who do not trust the bank can perform their banking transactions not by an authority, but through an algorithm created by the system. It allows you to be done with a certain formula with millions of devices connected to DeFi networks. For this reason, a center can't intervene in DeFi systems. Users of the system also ensure that the system can work.

The advantages aspects of DeFi systems in general are:

• It led to the emergence of decentralized exchanges.
• It has enabled the use of money-based banking systems by everyone.
• It has enabled users to borrow and lend transactions between users.
• It enabled the introduction of a new cryptocurrency to the market and the ability to raise funds for projects.
• It has enabled newly available finance tools to be made available with DeFi.

 

What is the Advantage of DeFi Systems?

 

After the 2008 crisis in the world, many people felt distrust towards banks and state central banks. The dominance of a center in all financial instruments, monetary policies, and a system that even banks could lose at any time was highly criticized. The fact that governments can print unlimited money and change valuations has increased people's interest in systems where no one can interfere with a certain formula.

 

Bitcoin has become the most important asset to emerge in this field. It was a decentralized DeFi organization, where thousands of people could be both using and managing it. With blockchain, where there is no need for a central authority, the field of finance has become more liberal. Users can keep their assets and send them to someone else without an intermediary, with a privacy policy.

 

What are DeFi Usage Areas?

 

DeFi claims to offer a better system than traditional financial systems. For this reason, there are areas of use that are advantageous from traditional financial systems. These are in general terms:

• To be able to transfer very cheap, fast, and secure money all over the world.
• With the established borrowing systems, users can both borrow and lend.
• Ability to tokenize an owned asset. Thus, it both gives a value to that asset and ensures that it can be transferred.

 

What Are the Disadvantages of DeFi?

 

DeFi will radically change the traditional understanding of finance in many ways. Being at the very beginning of this change causes there to be still open spaces in some areas of this system. DeFi systems currently have two aspects that may be missing. Although it aims to be used all over the world, the number of people using DeFi is very small at the moment. As a second problem, so many transactions have to be stored as data in some way. There is not an adequate infrastructure for the storage of these data.

 

DeFi use cases that currently rely heavily on high-quality external data sources through oracles include:

• Algorithmic stablecoins such as the FEI, which need a reference price to protect the stablecoin.

 

• Money markets like Aave and Compound need prophecies to calculate the value of collateral, interest rates, and liquidations.

 

• Synthetix and dYdX protocols for synthetic assets that need accurate market data to print, burn, trade, and liquidate synthetic assets.

 

• Asset management platforms like Set Protocol, which need price data to periodically buy and sell assets to maintain a certain allocation in a basket of assets – a process called rebalancing.

 

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