What is DeFi or decentralized financing?

Blockchain technology is identified primarily with one concept: that of decentralization. But it’s still a somewhat ethereal term that is difficult to pin down in real life. However, the potential applications are no longer only attractive to programmers and people with great technical knowledge, and this can be observed in the DeFi.

DeFi, or decentralized financing, aims to exclude traditional banks and other intermediaries from the financial business

DeFi is short for the Decentralized finance or decentralized financingThis is one of the newest (and most useful) revolutions in the blockchain and crypto world. The name is pretty explanatory: it consists of turning traditional financial products into something completely decentralized that is available to everyone.

In other words, the DeFi seeks to remove any kind of centralization and thus an intermediary between a user and a service. This means saying goodbye to banks and other economic entities when you apply for a loan, save money, get insurance, invest in funds or take any other related action. Not only that, DeFi also eliminates the need to use IDs, account or social security numbers, etc.

This decentralization is achieved through the use of blockchain and smart contracts, which allow an action to be carried out automatically when the conditions set by the creators of this contract are met. Therefore, every decentralized financial action is registered in the blockchain network and automatically validated and secured. In addition, these records are public and immutable, so security and transparency are theoretically quite high.

Most DeFi applications take place on the Ethereum network, whose smart contracts make it an ideal network for this type of funding. In fact, it is something that has been targeted in the White paper of Ethereum, published in 2013.

So far, all have contracts concluded in DeFi an approximate value of $ 41,000 million. Although, as with market capitalization, it doesn’t mean there is liquidity with that value. Currently, most of the decentralized funding comes in the form of DEX or decentralized exchangeThese are platforms where users can exchange crypto for others without having to register.

Another of the most common uses is making calls Stable coinsThese are cryptocurrencies that are linked to real currencies such as the dollar so that the price does not vary as much, which gives some stability to the operations.

However, DeFi is far from perfect. Since they are new, they still contain bugs and vulnerabilities that can cost their users dearly. Hacks or Carpet pullswhere all liquidity is drained from a platform and users are unable to do anything are not uncommon. And like anything related to the crypto world, investing in DeFi is pretty risky.

This is a relatively new technology so there is still a long way to go. However, the growing popularity and upcoming events like the launch of Ethereum 2.0 seem to suggest that DeFi will be increasingly present.

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