What is so special about DeFi?
According to world experts, DeFi could become the 2020 defying trend in digital currencies space. While different fintechs are trying to integrate the new concept into their ecosystems and analysts are expecting trending lifecycle as far as its pros and contras, let’s try to understand what DeFi is all about.
Standing for “decentralized finance”, DeFi englobes a wide range of financial services, applications supporting digital currencies and/or based on the Blockchain technology acting like disruptive financial intermediaries.
The most important point of DeFi being ideologically and technically based on the Blockchain technology is the realization of this exact “decentralized” characteristic that aims higher speed and efficiency of financial operations as far as elimination of third-party control over user personal data and funds. Thus, DeFi could be understood as the next step of the Blockchain technology world expansion and adoption making a wider use of it.
Another disruptive approach of DeFi consists in avoiding intermediaries in the digital payment process. Institutions set up in the middle of every payment controlling, retaining and rejecting transactions are no longer needed with the DeFi implementation. As DeFi solutions enable and secure direct transfers between the consumer and the merchant. It also means that lendings, crowdfunding and insurance activities could also become direct due to DeFi.
Today, DeFi contracts are mostly based on the Ethereum protocol as its platform for smart contracts gives much more flexibility concerning transactions than other solutions on the market. This flexibility is mostly secured by the ETH coding language, Solidity, that was specially created for generating those smart contracts. Thus, these are exactly the smart contracts that become the very heart and basement of DeFi services.
The DeFi services include stable coins to stabilize prices and markets, decentralized exchanges for digital and traditional currencies, lending platforms with smart contracts, WBTC for generating profit in BTC on lending platforms and different market betting solutions. DeFi has also recently introduced such new monetization methods as yield farming, liquidity mining, application and service construction from ready-to-use blocks.
The key DeFi solution advantages, despite their early development stage, is, of course, their unicorn potential that consists in higher inclusivity and revolutionary approaches in comparison with traditional banking and financial solutions. The DeFi solutions aim security as one of their main goals — the characteristic every user is searching for when it comes to trusting his or her money to some services.
DeFi could also become a significant turning point for the Blockchain technology development. While Ethereum is used for DeFi projects realization, Bitcoin can also secure direct and secure transactions which means that both top digital currencies should implement significant improvements to stay competitive. And all this only for user comfort.
While DeFi looks extremely disruptive and thus attractive for an investment try, we hardly recommend staying critical and wise as far as analytical as all the DeFi solutions should pass the market approval and testing stage to be fully trustable. Let’s stay tuned!