What is DeFi and why is it so popular?

21.09.2020

DeFi stands for Decetralized Finance and is a really hot topic right now. It serves the same role for markets as the cryptocurrencies do for transactions. We’ll explain what is it, how does it work, who uses this and why is it next step into financial indepence for crypto users.

What is DeFi?

DeFi is a term describing a new era for cryptocurrency usage. It consists of:

a) Decentralized exchanges – even though crypto itself is designed to be independent, people still have to use private services to exchange one currency for another. DeFi brings new opportunity, now you can buy other crypto without having to trust anyone!

b) Decentralized borrowing and lending – everyone takes a loan from time to time. Why wasn’t it possible on blockchain then? DeFi allows you to borrow money from someone directly, as well as lend it. Of course, for a commission.

c) Decentralized prediction options and insurance – just like above, DeFi returns control of the assets back to the customers. The network will take care of your order

Is DeFi the future?

We’ve already had a deep look into the history of money. The important thing to notice is that in order to create markets and online payments, we had to go through many steps, until our modern financial system was established.

The Bitcoin (and the rest of cryptocurrencies) has already reached the level, where we can create financial tools designed especially for them.

Thanks to DeFi, crypto users can use their money in many ways without sending it anywhere. It greatly increases security and reliability of the network. Because of that it’s believed to get inseparable from the blockchain in the future. Of course, it doesn’t mean that big exchange companies will shut down immediately. You can still use their services if you don’t feel safe using DeFi solutions.

How to make money with DeFi?

Nowadays, one of the most popular ways to get profit from cryptocurrencies is trading them on markets. With DeFi you get one more possibility – loans. After choosing a lending protocol, your money will be automatically borrowed to others for commission. You sleep, your money works for you – it’s as simple as that!

How DeFi will impact crypto industry?

Since crypto users don’t have to rely on specific companies and can trade with each other, it will most likely lead to lowering fees on many crypto-processing services. Also, you can feel more secure now since you’re not required to give someone access to all of your money in order to trade. Those are great news to all of the customers.

The worse side of DeFi is that “getting rid” of regulated companies can raise bad assumptions about cryptocurrency. We all know that Bitcoin is often seen as connected to black market, less regulations means increased amount of gossips.

Anyway, we still think that DeFi will change the crypto industry for better. We just need to wait to see how much.