Since the surge of Bitcoins, Blockchain is gaining a lot of attention and attracting a huge crowd towards it. Did you know, about 60% of the market value of blockchain is through the Financial sector? Yes, Decentralized Financing or De-Fi through blockchain is redefining the traditional financial system followed for hundreds of years. Decentralized Finance development is creating a revolution in how people approach financial functions today. Though blockchain is extending its hand to reach out to every possible industry in the world, the financial sector is dominated. Entrepreneurs find this an excellent door to open up their business and on other hand, it is contributing to the community as a whole.
Defi is indeed an interesting thing to know about. Since blockchain is invading all over the world, dominated by De-Fi, it is important for the public and the entrepreneurs to know something about it.
Understanding Decentralized Finance
The world has been running on the traditional, centralized financial system for centuries now. A centralized authority be it a private third party or a government controls the financial transactions, offers security to the monetary assets, offers loans, and more. The centralized party takes up its fair share of the functions it provides through interests, transaction fees, penalties, and also there are delays in working and slow transactions.
Blockchain came into existence offering excellent speed in transactions, peer to peer, without any involvement of a centralized authority. Instead, the financial functions are controlled by a set of codes or smart protocols in the blockchain network. These are non-hackable, non-modifiable. Blockchain stands as a digital ledger that can store the data of transaction details and these are also unreachable by external threats.
Thus blockchain provides security and allows peer-to-peer transactions and the functions are mandated by unhackable codes.
To make it simple, decentralized finance is a financial system where people can do transactions on their own without relying on a centralized authority. This is not just restricted to money transactions but also includes lending borrowing, exchange, etc.
Did you know that there is over 80 billion USD is locked under de-fi in decentralized finance? The market is constantly growing and it is posing a great opportunity today for a better future.
Smart contracts- The building blocks of De-Fi
Smart contracts are codes that act as a pillar of decentralized finance defi development. They are un-hackable codes that run automatically once the mentioned conditions are met. This makes sure that no external threats can disturb a peer-to-peer transaction.
Smart contracts make transactions in the blockchain easier. For example, a traditional mortgage and lending process is tedious and time-consuming. But with smart contracts, it is just quick and also with zero intermediary fees. Decentralized financing is completely autonomous and people can enjoy privacy in the blockchain network. Statistical research found that around 49.01 billion TVL (total value locked) for defi lending alone.
Benefits of defi development
As mentioned earlier, the main advantage of decentralized finance over traditional finance is that it eliminated the centralized authority over finances. Decentralized finance makes financing easier and there are a number of other benefits making it a trending technology in financing.
- Permissionless network- blockchain offers a permissionless environment that makes it easy for the users to access defi functions. Anyone with a crypto wallet can perform defi functions irrespective of their balance.
- Immutable nature– The smart contract codes are unchangeable and they can be changed only after getting permission to change the data from all the nodes in the blockchain network, this way it is not possible to tamper with any of the data stored.
- Transparency– every data stored and every transaction made is recorded in each and every node of the blockchain network. The network is also open source so anyone can access the network and request data for auditing.
- Easy global access– when it comes to centralized finance, the transaction between peers in two different geographical regions involves intermediate transaction fees or is even restricted. Since there are no intermediaries in De-Fi development, people can enjoy financial transactions globally without any interference.
Functions you can enjoy on De-fi development
Decentralized financing on the blockchain is not restricted to end-to-end transactions. Defi is extended to the following financial functions and is serving the users better today.
- Banking- Since De-fi removes the centralized intermediaries, it offers all financial services including money transfer, payments, loans, insurance, issuance of currencies, and more. It is backed by smart contracts and hence it enables the users to trade their cryptocurrencies and make payments through them. It makes the insurance process faster and cheaper and it also facilitates easy lending and borrowing
- Asset storage and management- it is now possible to manage assets and funds without the help of a third party like banks. A secured crypto wallet will facilitate secured storage of crypto assets and it also ensures secured buying selling, transferring, lending and borrowing. The wallet is secured with multi-layer security with private keys, wallet passwords, and seed phrase
- Lending and borrowing- the highest total value locked in the defi sector is in lending and borrowing. Lending and borrowing crypto assets in the blockchain have been getting the utmost response from the crypto geeks because of its quick fund processing, low transaction cost, digital assets as collateral, and no credit checks.
- Decentralized Exchange- People can exchange cryptocurrency with others without any centralized control. The transactions are transparent and thus eliminated the commission fee or transaction fee. The second most total value locked in the defi sector is in DEX.
Defi is making its way towards creating itself the new normal financing system eliminating the traditional system from the game. Many big-shot banks have already taken blockchain and cryptocurrency. Banks in the US are even giving crypto loans now. Decentralized Finance Defi development is trending today and entrepreneurs are making their way towards blockchain with it.