Decentralized finance has been receiving special attention since the market crash in 2020. However, until now, not everyone understands the essence of this phenomenon. At the beginning, this name was given to analogs of traditional financial market instruments with a decentralized architecture. Now they are an autonomous public system that consists of decentralized services and applications implemented based on public blockchains, in most cases, on Ethereum.
The goal of decentralized finance is to create a financial system that is open to everyone and does not require trust from users. In addition, decentralized finance promotes the principle of self-sufficiency. Conservatives see this aspect as a disadvantage rather than an advantage.
How DeFi differs from FinTech
There are some similarities between decentralized finance and financial technology (FinTech). However, their main difference is that the main pillar of Fintech is the traditional financial structure, while new elements are included in decentralized finance.
FinTech payment services use bank accounts and other infrastructure, although their commissions are several times lower than those of many banking institutions are. Ether miners, not centralized intermediaries, verify DeFi transfers after which payments are incorporated into new Ethereum blocks. Your transaction will be processed by miners for the equivalent of 1 US dollar, which will take about 15 seconds. This is how long it takes to create one block, where each verified transaction is recorded. You can send your tokens to anyone who has a wallet that supports the corresponding tokens, regardless of where the person lives – even in a country that is under sanctions or is still operating under an outdated financial system.
DeFi Application
Since decentralized finance is an affordable alternative to many traditional financial services, anyone who has access to the global network and has a minimum stock of knowledge about cryptocurrencies will be able to work with the DeFi system and manage the assets that have been added there. For this, blockchain developers have created hundreds of new DeFi projects that have their own protocols, services, decentralized applications and peer-to-peer networks.
Stablecoins
DeFi is most commonly used in stablecoin projects. Stablecoin is a cryptocurrency, the rate of which depends on a financial instrument, for example, an exchange commodity, fiat currency, raw materials. Thus, all stablecoins that have been issued are backed by reserves held in special secure vaults. The value of a stablecoin pegged to the dollar is provided by the issuer, and the sale and purchase of this cryptocurrency is linked to AML / KYC procedures. Examples of DeFi projects with stablecoins include Wrapped Bitcoin (WBTC), sUSD (SUSD), and mStable USD (MUSD).
Decentralized exchanges
Decentralized exchanges have become popular again thanks to the rise of DeFi. These exchanges operate on blockchain and do not store user data and cryptocurrency on their servers. We can say that decentralized exchanges act as a platform-linking buy and sell orders. This trading model provides an opportunity not to resort to KYC and does not depend on a certain circle of traders.
Let`s look at some interesting examples of decentralized exchanges:
- 1inch.exchange. It is an aggregator of different exchanges, which divides a trade order among non-custodial platforms to minimize slippage and determine the maximum profitable price for execution;
- Uniswap DeFi. It is a decentralized protocol based on Ethereum and DEX at the same time, providing liquidity and facilitating the exchange of tokens through an automated market-making model;
- Radar Relay. It is a decentralized platform that supports cryptocurrency exchange, depositing ETH, DAI, USDC at an interest rate and opening short and long positions with leverage.
Decentralized services
In addition to DeFi exchanges and stablecoins, there are about 8 other areas within the sphere of decentralized finance:
- loans in cryptocurrency or DeFi-loans;
- decentralized independent companies;
- management of DeFi-assets and their storage;
- insurance of a decentralized type;
- payments and banking services;
- supply of liquidity;
- marketplaces;
- platforms of an entertainment nature, such as bets and online lotteries.
Of those existing in the form of applications and services of decentralized finance, the following can be especially distinguished:
Daohaus (DeFi DAO)
It is a platform where the user can browse 40 different DAOs before directly joining any of them. In addition, there you can design and implement your own DAO on Moloch. This platform aims to become and maintain the status of a forward-looking and user-friendly service for DAO members and creators, and to reduce coordination costs to zero.
Cobo Wallet (Asset Management)
It is a dApps store as well as a cloud-based multicurrency wallet with a mobile app and coin and asset staking management functions. Cobo Wallet is designed to make investing as convenient and simple as possible through dynamic asset allocation to minimize risk. The support of 20 blockchains and 700+ tokens is ensured, which can be transferred to other users of this wallet completely free of charge.
Ramp Network (payments and banking)
A payment gateway allows you to purchase BTC, ETH, STAKE, USDC, DAI and DOT instantly through a debit card or bank account. Ramp Network encourages open financial activities in full compliance with regulations and laws. For integration with other desktop and mobile applications and third-party web services, the gateway offers developers the Ramp Instant SDK.
Pros of DeFi
DeFi projects enjoy the same popularity as ICOs and IEOs previously had. Let’s see why there is such a stir around them and what makes them so attractive to organizers and participants.
Decentralization
One of the main advantages of DeFi is complete decentralization. It is of great and important importance that the crypto project is managed by all participants using smart contracts, and not just by managers.
Availability
Thanks to DeFi, people who have not previously used financial services can participate in the global economy. More than a billion people around the world do not have access to banking services, do not have a bank account, credit or debit cards. This occurs for many reasons, but it is mainly because many people simply cannot provide the documents required by a financial institution. In addition, in some countries it is quite difficult to obtain the required number of credit points. In some states, banks, except in the capital alone, are nowhere else.
Earning opportunity
The use of decentralized finance, in addition to maintaining a stable ratio of quality and value, provides an opportunity to receive passive income from the available cryptocurrency. This can be done in many ways, in particular, through asset allocations, savings accounts with high interest rates, etc.
Control over finances
DeFi assumes that only you will control your assets. Decentralized services such as MakerDAO give you the ability to monitor your financial assets around the clock. No one will be able to freeze your account or suddenly withdraw funds that belong to you.
Transparency
DeFi keeps all information in the public domain, where it is open for review. Thus, the user can choose the most suitable projects and secure services without leaving home. If we talk about a real loan, and not about a DeFi service, then in order to obtain it, you will have to visit more than one lender to compare the proposed rates and make sure that the company does not offer hidden fees. With DeFi, all information regarding lending protocols is available and transparent.
For business, DeFi has the following benefits:
- high level of security;
- popularization;
- global availability;
- reliability of smart contracts;
- attractiveness for investors.
Our experts will develop for you a DeFi solution of any complexity, be it a stablecoin or a DeFi platform. We provide only high-quality services and work on time so that you can start using your product as soon as possible.