You probably haven't heard of decentralized finance if you haven't been connected to the internet and communicated with people over the last year. Decentralized finance, or DeFi, is the next step in the evolution of digital banking, with over $100 billion in crypto assets already in circulation.
As a matter of fact, it may be defined as a financial ecosystem based on the blockchain of intelligent contracts. A blockchain-based DeFi solution differs from traditional banking institutions in that it is fully automated.
Therefore, smart contracts require no human intervention since they execute instantly once programmed conditions are met. Blockchain technology is used in decentralized financial applications to ensure that everyone with access to the Internet can make use of the technology.
The DeFi platform is regarded as a true manifestation of democratization of finance. However, how is it different from other blockchain-based initiatives from the past few years? DeFi applications, or dapps, can make a significant contribution to the global financial sector. In addition to their versatility, they permit you to perform a variety of functions, including borrowing, lending capital to receive interest, exchanging assets, obtaining insurance, storing assets, trading, and many others.
A Dapp is very cost-effective, does not require intermediaries, and does not involve any unnecessary bureaucracy.
Financial services can be provided incredibly fast thanks to strong encryption. The DeFi application offers financial autonomy to a population that has traditionally been unable to access banking services because, without all intermediaries, they are capable of reaching and serving those who were unable to access banks in the past.
The most common use of Dapps is to lend and borrow digital currencies. Using your crypto wallet, you can directly interact with the smart contract. Due to the use of open-source software, DeFi solutions are completely transparent. Transactions are published on the blockchain, allowing you to check DeFi banks' reserves and find the best loan rates.
DeFi's tradability is another advantage. With tokenization, you may be able to invest even if you do not possess thousands of dollars of free capital because DeFi applications offer tradable tokens that are part of a more significant, high-value investment.
Using blockchains in decentralized finance also eliminates the need for centralized entities such as government agencies, corporations, banks, or other financial institutions to control transactions between parties.