What is Difai and what are its goals? Removing banks, iermediaries and ceralized organizations from the financial world; This is the ideal that DeFi works to achieve.
In this article, with the help of an article from the Binance Academy website, we explain in simple terms everything you need to know about the field of deceralized financial manageme.
Also, to learn more about how to work on DiFi platforms, we recommend the article “The most comprehensive DiFi training; From Garlic to Onion of Deceralized PlatformsRead the
What is DeFi?
Defay(DeFi) Or Deceralized finance A collection of deceralized applications is iended to replace ceralized iermediaries such as banks. Defay services such as receiving loans in a deceralized manner And he does it without the need for an iermediary. DeFi is not a project or digital currency, but an ecosystem of hundreds of differe projects, all of which provide deceralized financial services.
Banks and ceralized organizations have long dominated the financial world. Today, if you wa to get a loan, buy and sell, or pay your installmes and taxes, you have to go to the bank, the governme, or other ceralized organizations.
All over the world, people trust governmes every mome with the assumption that they are clean and with their help the value of national currencies is protected. The people of the world trust banks with the assumption that they are honest trustees of their money. Every mome they rely on iermediary companies with the hope of receiving flawless financial services.
But history has shown that ceralized iermediaries can commit corruption or unieional error. The field of deceralized finance has come to eliminate corruption, inadverte error, and the need for ceralized trust by using blockchain and the concept of deceralization.
also We can define DiFi like this: A moveme to create an open source, permissionless and transpare financial services ecosystem That’s for everyone accessible is and No ceral iermediary Works. In this way, the user has full corol over his property and communicates with the ecosystem through deceralized applications (Dapps).
With its great goal, DeFi can be considered as one of the most promising innovations of the digital age, along with blockchain.
What are the uses of DiFi?
DiFi applications It is very broad and most parts of the financial world can benefit from the benefits of DeFi. However, Three main uses of DiFi They include the following:
- Receiving loans and lending
- Paid banking services
- Deceralized exchanges
Receiving loans and lending
Deceralized lending protocols are one of the most popular applications in the DeFi ecosystem. Lending and receiving loans in a free and deceralized manner has many advaages over the traditional credit system. Among the ieresting features of blockchain-based lending platforms are insta payme, the possibility of collateral with digital assets, and no need for credit checks.
In these systems, liquidity providers can earn a profit by putting their assets on the platform, and other people can borrow from that liquidity.
Since these services are offered on public blockchains, the need for trust will be minimized and a very high level of transparency will be established. In general, deceralized lending systems reduce couerparty risk, making it cheaper, faster, and more accessible to more people.
Paid banking services
Given that DeFi applications are financial applications by definition, paid banking services are one of the obvious uses for these applications. These services can include issuing stable coins (stable coins), mortgages and insurance policies.
As the blockchain industry matures, there is a lot of focus on creating stablecoins that have fixed value like Tether and are also deceralized. A stablecoin is a type of digital currency that is backed by a stable asset or commodity such as the dollar. For example, a stable dollar digital currency (such as Tether) is backed by the dollar and its value is always one dollar.
Regarding credit services, in the traditional system, due to the existence of many iermediaries, the process of registering mortgage and collateral is very expensive and time-consuming. By benefiting from smart coracts, legal and underwriting costs will be significaly reduced.
On the other hand, issuing insurance on the blockchain eliminates the need for iermediaries and greatly reduces the risk of insurance policy violations. In this way, by maiaining the quality of service, the amou of the insurance policy can be reduced.
Deceralized exchanges
According to experts, deceralized exchanges will play an undeniable role in the future of financial transactions, and these exchanges themselves include DeFi.
In deceralized exchanges that work on the blockchain, traders can buy and sell digital assets directly without iermediaries. These transactions are done from users’ personal wallets.
Since a ceralized organization cannot have corol over exchange processes, transaction fees are very small; However, there are still challenges regarding the network’s own transaction fees.
Also, blockchain technology can be used to issue and provide ownership of a large number of financial instrumes. By creating a deceralized platform, these programs eliminate the need to trust trusted organizations, and with the help of distributed ledger technology, they do not have a single poi of failure that can be attacked.
For example, in the field of DeFi, tools and resources can be provided for the supply of stock tokens (securities) with which individuals and businesses can create digital currency for assets such as stocks and real estate and consider their desired parameters for it.
Derivative markets (futures and options) as well as prediction markets (such as Agar) can also be a subset of Defi.
Where are DiFi programs run?
The core of the field of deceralized finance is the smart coract, as deceralized applications work through it. Therefore, blockchains that host smart coracts can also host DeFi applications.
While normal coracts use legal materials to specify the relationship of the people involved in the coract, a smart coract uses computer codes.
Thanks to blockchain, a smart coract will be enforceable once implemeed. The developer determines the terms of the coract execution in the code, and after registering it on the blockchain, even he himself cannot stop the execution of the coract.
Smart coracts are faster and easier to use and less risky for the parties. On the other hand, smart coracts still struggle with legal challenges and, for example, legal authorities do not yet recognize a smart coract as a home owner. Also, since smart coracts cannot be stopped, the existence of bugs or malicious code can cause danger.
Ethereum is currely the largest platform that DeFi projects can work on. Without exaggeration, we can say that at the curre stage, the Ethereum blockchain hosts more than 70% of the eire DeFi ecosystem.
In addition to Ethereum, IAS, Tezos, Tron, Cardano, Neo, Elgorand and dozens of other blockchains are capable of hosting deceralized finance applications.
What are the biggest problems of DeFi?
The most importa problems that DiFi is facing are:
- Speed
- Possibility of user error
- Bad user experience
Speed
Blockchains are currely slower than their ceralized competitors, and this affects the performance of deceralized applications as well. For example, Ethereum, the main host of DeFi projects, can now only process 14 transactions per second.
Of course, with various scaling solutions and poteial improvemes, this problem will most likely be solved in the near future. It goes without saying that dozens of DeFi projects are already working well on these slow blockchains.
possibility of user error; Everyone is responsible for their property
As we said, Defay eliminates financial iermediaries and leaves all the responsibility to the users themselves.
For example, if you lose your bank accou password, you can recover it by going to the bank, but in open blockchains like Ethereum, the ideity is a text string of letters and numbers called a “Private Key”. ) is determined that if you lose it, you will lose access to your wallet balance forever.
Also, blockchain transactions are irreversible, which means that if you deposit money io the wrong wallet, you will probably never get that money back. For this reason, distracted users are at risk when working with DiFi.
Bad user experience
Currely, using the DeFi domain is a bit complicated for novice users, and curre applications still don’t have as good a user ierface as they should.
For a normal user, privacy and deceralization are not the first priority. The ease of working with this area can be an inceive for users to abandon ceralized systems, but without a suitable user ierface and easy access, deceralized applications cannot have a say in terms of user numbers.
The developme of mobile software for applications in the field of DeFi is the most importa issue that should be considered about user experience.
Frequely asked questions
Defay stands for Deceralized Finance. DiFi refers to a set of blockchain applications that provide the same traditional financial services without the need for iermediaries and in a deceralized manner.
DeFi is not a digital currency, but a set of deceralized applications that aim to remove the middleman from financial services. Of course, each of these deceralized programs can have a dedicated digital currency.
To eer the DiFi market as a user, you only need a digital currency wallet and some digital currency. The type of wallet and digital currency depends on the DeFi platform you wa.
DeFi is a concept and considering its high poteial, it is unlikely that this concept will disappear altogether. However, factors such as the future of the eire crypto industry could affect the future of DeFi.
Conclusion
In this article, we examined what DiFi is and what its uses and challenges are. DeFi is a broad field that tries to provide financial services needed by people by eliminating iermediaries. With the help of this field, we can move towards a freer financial system; A system that is available worldwide and preves corruption, censorship and discrimination.
Deceralized DeFi applications run on blockchains that host smart coracts. Ethereum is currely the largest DeFi host.
DiFi’s poteial to create a differe future is extremely high; A future where we manage our finances without the need for banks and iermediary companies and have full corol over our own assets.
