Crypto currencies have taken over the global financial market pushing through definite obstacles in the financial market. In spite of these there have been failures in the crypto market which has driven for the innovation of a unique and different way of transactions –the DeFi. The DeFi is a short form of the full word decentralized finance. It is known as a general word for the Ethereum and block chain applications that have been tailored in the direction of exterminating financial mediators. This structure opens an order whereby the network is visible to anyone to make use of instead of moving through middlemen like banks or lawyers. It offers control and visibility over your money, beyond that, providing an exposure to global markets and alternatives to your local currency. Check out the stz coin, they’ve a total fixed supply.
DeFi is a thriving crypto economy ensuring to eliminate archaic standards which have been inculcated into the crypto network. This provides a transparent service ensuring human error is minimized and finances are more secure .The importance of this lays in the fact that you have more control over your money giving you the luxury of freedom.
DeFi is at times referred to as ‘Lego Money’ because of the ability to stack dApps together in order to maximise returns. It can be likened to the toy blocks ‘Lego’ children put together to construct different infrastructures and more. Using the smartphone through DeFi it is possible to purchase a stable coin and then lend it on compound to earn an interest. DeFi is known to draw inspiration from the block chain technology which is behind the digital crypto currency bit coin allowing a number of entities a duplicate of the archive of transactions. This means it isn’t regulated by a sole central source. This is what gives DeFi the name of decentralization. It is handled by several sources thereby ensuring that its network cannot be easily tampered with. This ensures that even if a source shuts down there would still be a functioning of the network as the sources are several. Various measures, protocols and technologies are taken to ensure effective decentralization. DeFi’s governance lies in the hand of whoever owns the money. Basically it lies in the hands of the user. Without central governance, there is a minimized risk of closure due to a governing power abandoning the project at hand.
DeFi also provides room for peer to peer transactions between people .By cutting off intermediaries DeFi helps to cut off loss of money there are fewer parties involved in the transaction taking place. Before, DeFi was remotely recognized as decentralized finance it was often called open finance. DeFi performs several transactions such as direct transactions, financial applications, insurance, crowd funding, derivatives and betting. DeFi applications are built on top of the Ethereum platform setting itself apart from the Bitcoin platform. However, the biotin platform was a foundation which called for the necessary innovative idea called DeFi.
Some questions surround DeFi and one of these is what exactly can you do with DeFi?
The things that can be done with DeFi are numerous and is an ever increasing list. It involves sending money around the globe, accessing stable currencies, buying of insurance and borrowing funds with collateral, starting a crypto savings, growing a portfolio and managing your portfolio. The components of DeFi are stable coins, use cases and a software stack that enables the development of applications.
One of the features of the components of a decentralized financial structure is their belonging to a software stack. In the development of a DeFi technological order every layers components’ perform a specific function aiding the building of the DeFi system. Four layers make up the DeFi stack namely; the settlement layer, the protocol layer, the application layer, the aggregation layer.
Each layer has its own function which enables the smooth running of the system ranging from residing consumer facing applications to connecting applications in order to provide a service and containing a set of rules or protocols governing tasks and activities.
There are different DeFi concepts which have risen up showing the versatility of DeFi. The actions of yield farming for literate traders who are ready to take the risk is a definite concept which has helped users scan through various tokens in search of opportunities for larger returns.
DeFi apps are also open source apps meaning that the code behind them is public for anyone to behold. Due to this beautiful feature, these apps can be used to compose new apps with the code as building blocks.
Making money with DeFi is quite risky however very profitable. So many people have claimed to make a lot of money via DeFi apps. The aspect of Yield farming is one with great potential for rendering great profit but with a very large risk. Investing in DeFi generally is risky inserting the need for newcomers in the activity to have knowledge of separation. The ability to separate goof projects from bad would go a long way in preventing great losses in return. It would also be profitable to note that DeFi bugs are unfortunately quite common and could definitely cause a loss for a user.
It is generally believed that DeFi is the future of technological finance in the coming years however in theory rather than practice.