Decentralized Finances & Bank of Chain
An introduction to DeFi and BoC
Bank Of Chain (BoC) is a new and innovative platform in the DeFi ecosystem, which connects carefully selected protocols within the cryptocurrency ecosystem, including automatic market makers (AMMs), lending protocols, and yield aggregators.
BoC helps ordinary users to obtain a near risk-free wealth management tool on the blockchain since, by accessing high-quality protocols and smart strategies, BoC provides a sustainable APY, higher than other similar funds managed in USD.
But, what is DeFi?
Let’s start with the basics so we can go on to tell you more about Bank of Chain.
DeFi is an abbreviation for Decentralized Finance and refers to a group of financial tools built on blockchain technology, which can be used by anyone with access to the internet, where transactions are carried out directly between parties without including intermediaries, e.g. buying assets, lending, or borrowing money, making transfers, earning interest and much more.
Any transaction can traditionally be carried out through traditional banks or financial institutions, but in a decentralized way, through the blockchain.
Briefly — since it is beyond the scope of this article — a Blockchain is an extensive database that works and is supported by the servers that are part of it. How? These nodes ‘connect’ to the network, process the transaction data that happens on it, and validate them by confirming them. Therefore, the database is located on each and every server that is part of it, without depending on a single server or company that manages the flow of information, also the information is encrypted with cryptographic methods and is transparent, public, and unalterable, which means no one can modify a transaction that all the nodes have already confirmed.
According to IMF data (2018), about 40% of the world’s population, around 2 billion people, do not have access to bank accounts; and this percentage increases even more -around 50%- if we consider only third world or developing countries.
DeFi has been presented as a solution to bridge the gap in access to financial services, considering that many people cannot access bank accounts. DeFi is also a way to invest and generate returns.
In short, DeFi includes autonomous and censorship-resistant financial products, executed on a public blockchain, which are permissionless and therefore do not involve third parties such as banks but are automated through a smart contract: self-executing software that facilitates, secures, enforces, and executes registered agreements between two or more parties after some predefined conditions are met, i.e. they hold funds and transfer them, in response to certain events, and that logic and operation cannot be manipulated by a central authority instead it is programmed with code in the smart contract.
Some of the benefits of DeFi:
- It is open: Anyone can use the applications just by creating a wallet to access it, without presenting personal identification, which is much easier than a bank account.
- It is almost instant: It allows fast transfers between accounts. Depending on the blockchain and a load of queued transactions -among other factors-, it could take some minutes.
- It is cheaper: Fees are generally lower than banks, although they may vary depending on the blockchain. While fees are more expensive on Ethereum, there are increasingly cheaper alternatives and improvements.
- It is collaborative and open source: DeFi apps work like legos, allowing anyone to create, modify, combine or build on top of another project without obtaining permission.
Anyone can access DeFi products by connecting with a cryptocurrency-enabled wallet, such as Metamask or Phantom, to a decentralized app website, only needing to have native coins from that blockchain to pay transaction fees. These products include lending and borrowing money, trading, derivatives, asset exchanges, stablecoins, prediction markets, insurance, etc.
Their terms and conditions are clear and transparent, being controlled by the immutable and public smart contract; all actions performed on the platform are visible and recorded on the blockchain.
DeFi markets are always open and functioning since there are no authorities to manipulate transactions or deny access to services. In the traditional system, these services are slower, centralized, and dependent on human management, making them susceptible to human error. In DeFi, they are automatic and more secure because they are managed directly by open-source code that anyone can inspect and contribute to.
Although it has great benefits and improvements over the traditional system, in the DeFi world there are still issues to be polished, and there are some risks such as scams and hacks, although this does not exclude centralization, as many banks and financial institutions have been hacked and multiple scams have taken place in their name. However, this area needs to be improved in DeFi, which has led actors and governments to call for greater regulation.
In summary, decentralized financial services based on blockchain have the following characteristics: permissionless, censorship-resistant, trustless, transparent, programmable, and efficient.
Here is a comparison of some features of decentralized and traditional finances.
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