What is DeFi?

The word “DeFi” stands for “Decentralized Finance” and refers to a decentralized financial system. Decentralized finance means the removal of intermediaries such as banks, organizations, and legislatures from the international financial system.

DeFi is introduced as a decentralized system for finance based on “blockchain” technology. This decentralized financial system helps us to deal with financial transactions such as receiving and lending, payments, and so on regardless of geographical and political constraints.

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What is DeFi or Decentralized Finance

Centralized finance system:

Before we start defining a decentralized financial system, it is best to review the definition of a centralized financial system. At present, all the financial affairs of the people of each country are subject to the policies of the Central Bank. This means that the central banks and their subsidiaries control the assets of the people. And the bigger weakness of centralized financial systems is the concentration of power on limited individuals, which widens inequality even more.

Decentralized financial system:

A decentralized financial system was created with the goal of eliminating intermediaries such as banks and legislatures in finance. How to implement this process is a bit specialized, but in simple terms, blockchain technology and smart contracts based on this technology allow the implementation of a decentralized financial system and its easy use. In this financial system, you do not have age, sex, religion, geography, restrictions to receive a loan, and with only one system connected to the Internet, you can do all your finances with the lowest fees.

What are Decentralized Financial Services?

Do not forget that DeFi is developing and is a very new and emerging concept in the financial system, we have published for you in Adaas Investment Magazine, the most widely used DeFi services right now, in 2021.

Receiving and lending

Get a loan easily or without traditional restrictions, or lend and make a profit!

Blockchain technology with 100% transparency of all data, maximizes trust between users and relying on smart contracts, all operations are done fairly, quickly, and without error.
In DeFi, you can get a loan immediately and freely by pledging digital assets, contrary to the traditional methods of centralized finance, or by making your personal assets available through lending systems, you can make a profit by providing liquidity…

Banking and monetary services

Mortgages, insurance policies, and cryptocurrencies with fixed prices are among the DeFi monetary banking services.

DeFi falls into the category of finance, monetary banking services are among the applications of DeFi. Stable Coins are one of the most important needs of the defense industry and invest in cryptocurrencies.

Decentralized exchange

In decentralized exchanges, there is no need for authentication to convert currencies.

There are no political, geographical, or other restrictions on converting assets into these exchanges. No institution or organization monitors users, and all operations are handled by blockchain-based smart contracts. In decentralized exchanges, the percentage of human error, commissions, and asset freezes are close to zero.

What are the challenges of DeFi?

As you have read, DeFi and blockchain technology are evolving and improving. DeFi is currently facing challenges, which we will examine below.

Speed

Data processing speed in Blockchain will need to increase processing and transaction speeds in the future like its centralized competitors.

Irreparable error of users

In DeFi, everyone is responsible for their own assets and inadvertent mistakes are irreparable. If you have a wrong transaction, there is no way to get it back!

Complexity of use

DeFi programs do not currently have a good user interface design and user experience, and novice users find it a bit complicated.

The end words

At Adaas Capital, we hope that by reading this article you will find the answer to the question “What is DeFi?” You can help us improve by sharing the article “What is DeFi and its usages?” Published in Adaas Investment Magazine, and help optimize this article by submitting your comments.

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