Does this article mainly introduce what is decentralized finance? What are the advantages of decentralized finance? For relevant information, friends who need it can refer to the detailed introduction of this article

The birth of blockchain technology, in addition to deriving emerging assets such as cryptocurrencies, it can also bring some new breakthroughs to traditional finance. The changes it brings mainly focus on supply chain, cross-border remittance, data privacy and Creative works and other fields, among which decentralized finance is more eye-catching.

In fact, decentralized finance refers to some financial applications based on blockchain technology and related to digital asset transactions, lending, insurance, and payment, which bring a lot of innovation and convenience to users. So what exactly is decentralized finance? Many investors want to know what are the advantages of decentralized finance? Let me tell you about it below.

What is Decentralized Finance?

DeFi, or "Decentralized Finance", is also known as "Open Finance" . It is a combination of cryptocurrencies represented by Bitcoin and Ethereum, blockchain and smart contracts. DeFi has two pillars, one is the stable currency represented by Bitcoin and Ethereum, and the other is the smart contract that realizes transactions, loans and investments.

First of all , DeFi is a model of the encrypted financial system. According to whether encrypted assets are involved, the financial system can be divided into traditional financial system (not involving encrypted assets) and encrypted financial system. Among them, according to whether to rely on centralized financial institutions or trading venues, the encrypted financial system can be divided into DeFi (not relying on) and CeFi (centralized finance) (see the attached table for details).

Secondly , the core of DeFi lies in "decentralization". DeFi provides financial services such as transactions, loans and investments on the blockchain by using cryptocurrencies and smart contracts, but does not rely on any centralized financial institutions, intermediaries or trading venues. In other words, DeFi provides financial services similar to traditional financial services while achieving financial disintermediation.

Third , DeFi also has a fairly high level of anonymity. Both parties using DeFi transactions (borrowing and lending) can directly conclude a transaction, and all contracts and transaction details are recorded on the blockchain (on-chain), and this information is difficult to be perceived or discovered by a third party.

What are the advantages of decentralized finance?

Due to the nature of blockchains such as Ethereum, where DeFi DApps are most often built, DeFi offers four unique features: decentralization, unrestricted access, transparency, and immutability.

• Decentralization: Transactions are verified by a peer-to-peer network and not controlled by a central authority.

• Unrestricted access: Anyone in the world can access.

• Transparency: Make data, prices, fees, transactions and any other relevant information publicly available.

• Immutable: Transaction records cannot be altered, creating a level of security that is difficult to achieve using traditional means.

The main advantage of DeFi is that it can solve many real-world problems. Like needing car repairs, but your funds have been converted to cryptocurrency? You can use cryptocurrency as a loan, such as Compound, in exchange for fiat currency as collateral. Lack of enough capital to invest in high minimum investment funds? You can earn handsome returns by lending out cryptocurrencies. Want to send money to family members abroad? You guessed it, DeFi has a cheaper solution than traditional financial institutions.

By cutting out middlemen, it makes traditional financial services accessible to a wider range of retail investors. Basic services like remittances and loans are often costly in traditional finance, so they are easily accessible to all. Often, the only prerequisite to get started with DeFi is a stable internet connection. In an ideal world of widespread DeFi adoption, a rural farmer in India might have the same financial access as a Wall Street banker.

This revolutionary financial system that is decentralized can bring more benefits, in addition, developers and users can also get rich returns. In the system of decentralized finance, users can benefit from a lot of opportunities and use this to obtain return on investment. On the lending platform, investors can also mortgage their cryptocurrencies to the lending pool, which can also obtain a considerable rate of return. With the growth of users' service demands, DeFi DApps are now emerging. In fact, this is also because developers see the potential of the DeFi market and believe that this market can make considerable profits.

The above is the detailed content of what is decentralized finance? What are the advantages of decentralized finance? For more information about the introduction of decentralized finance, please pay attention to other related articles of Scenario!

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