Decentralized Finance (DeFi)
- Interest in decentralized finance has increased during the pandemic
- It is a new model that promises to revolutionize the financial sector in the coming years
- Among its benefits are that it is a global, transparent system without intermediaries
The economic uncertainty generated by the pandemic has sparked a growing interest in cryptocurrencies . Uniswap clone Fearing that we are entering a scenario of inflation and currency devaluation, investors are betting on decentralized finance by conceiving it as a form of diversification and protection of their assets.
But what is decentralized finance and what does it have to do with cryptocurrencies?
What is DeFi
Decentralized finance or DeFi (for its abbreviation for Decentralized Finance) “ is a set of systems that allow value (tokens) to be exchanged from point A to point B (wallets), without intermediaries,” they define from the Decentralized Finance company.
This type of finance is based on blockchain technology , usually Ethereum, although more and more alternative and public networks are emerging that offer greater stability and security at lower costs. The blockchain is the technology that is also behind cryptocurrencies and acts as a great accounting book that protects the security and privacy of transactions and allows the elimination of intermediaries. Uniswap clone script
A revolution in the financial sector?
According to the latest 2021 report from the World Economic Forum (IMF), in the last year the value of digital assets with DeFi contracts went from 670 million to 13 billion dollars .
This spectacular growth anticipates a change in the current financial sector. While, for now, financial products are completely controlled by a few specialized entities, DeFi gives users full control of their assets .
In this way, it is estimated that decentralized finance will dominate the market in the coming years, which will mean a more egalitarian world in which anyone will have free and transparent access to financial products and in which banks and financial institutions will become unnecessary.
However, decentralized finance also faces challenges, as it lacks clear regulation to accelerate its benefits and mitigate risks. For this reason, the IMF has developed a toolkit to guide authorities in creating regulatory policies related to DeFi.
“ Decentralized finance is in its infancy, but it is growing a lot and can change how the financial sector works ”, Uniswap clone software says Torres Vila. For the president of BBVA, this system “is allowing anyone at any scale to participate both to use and offer financial services, with no intermediary other than a computer program.”
The financial sector is being the first to apply this type of technology, “but decentralization through ‘ smart contracts ‘ stored in the ‘blockchain’ is going to extend to practically any sector of activity”, he explains. Something known as Web3, the new version of the internet in which services will be more decentralized and which is positioned as one of the most powerful disruptions by opening the world to new opportunities.
DeFi versus traditional finance
One of the best ways to determine the potential of DeFi is to understand the problems that currently exist.
- Some people do not have access to a bank account or the use of financial services.
- Lack of access to financial services can prevent people from getting a job.
- Financial services can block your money transactions.
- Your personal data is a hidden burden on the financial services you use.
- Governments and centralized institutions can shut down markets at will.
- Business hours are usually limited to working hours in a specific time zone.
- Money transfers can take days d
- ue to internal human processes.
- There is a premium to the use of financial services because intermediary institutions need their share.
A comparison
DeFi
You save your money.
You control where your money goes and how it is spent.
Funds are transferred within minutes.
The financial activity is carried out under a pseudonym.
DeFi is open to anyone.
The markets are always open.
Built on transparency: Anyone can look at product data and inspect system performance.
traditional finance
Companies save your money.
You need to trust companies not to mismanage your money, such as lending money to high-risk people.
Payments can take days due to manual processes.
Financial activity is strongly linked to your identity.
You must request the use of financial services.
Markets close because employees need rest.
Financial institutions are like closed books: you can’t ask about loan history, record of your managed assets, etc.
0
