DeFi: What it is and what you need to understand about it in 2021
De-Fi is a short acronym for Decentralized Finance. In cryptocurrency, DeFi refers to an open and global financial system built on blockchain technology. It is a form of finance that allows financial products to become accessible(users can invest, save, trade ) by anyone on the internet. Unlike traditional banks, DeFi does not rely on intermediaries such as exchanges, brokerages, etc rather it utilizes smart contracts on blockchains, such as Ethereum. Currently, billions of transactions have been performed through DeFi and its use is growing in leaps.
How Does DeFi Work?
DeFi works around decentralized applications (DApps). Through DApps, transactions made by users are carried out directly between users and are mediated by smart contract programs. Most DApps currently run on the Ethereum blockchain and are typically accessed through a Web3 enabled browser extension or application
DeFi’s Importance
One of the major importance DeFi holds lies largely in its ability to provide financial opportunities to anyone regardless of who they are, thereby disrupting barriers that have previously existed and were established by governments and financial institutions.
What can you do with DeFi?
Due to its decentralized nature, DeFi’s uses vary and its use cases are continuously on the rise with more use cases constantly emerging. Here is an ever-growing list of what you can do with it:
Save and earn: You can save and earn money in crypto from anywhere in the world which breaks down the barrier of location and makes it possible to access and take advantage of.
Invest in crypto assets — Digital assets such eg NFTs can be minted and invested into with ease. Also, you can buy and invest in any crypto coin you prefer to diversify your portfolio.
Send money fast- Traditionally sending money across the globe can take time, with DeFi you can save time and get your transactions done fast saving you time.
Trade — You can easily trade crypto by yourself with the right knowledge which allows you to learn about money, grow your finance skills and how to grow it safely rather than have a third party manage it for you.
Fund ideas you love — Leveraging on DeFis such as Ethereum, you can fund business ideas and take part in investment opportunities that allow you to do so using crypto. You can also access global funds.
Hedge your money against inflation — Depending on where you are located in the world, fiat currencies are always susceptible to inflation. A good way to escape the effects of inflation is to save your money in stable coins.
Lend money out: With DeFi, you have the ability to borrow money with interest rates that are favorable. Crypto users can lend out cryptocurrency and also earn interest as a lender.
The Future for DeFi
DeFi is still in the beginning stages of its evolution in 2021 as more of its use cases continue to be explored. DeFi continues to disrupt how traditional financial transactions take place, making the world of finance more open-source and decentralized, removing the need for middlemen, and increasing access to financial opportunities for all.
