Technological advancements have made our lives easier and more convenient in all sorts of ways. But for centuries, the way we exchange, lend, and invest financial assets has relied upon large financial institutions that served as middlemen in providing financial services and vouching for every transaction.
DeFi, one of the main trends of the blockchain industry since 2020, has changed how individuals manage their financial assets and empowers them to benefit from financial services backed by technology, algorithms, and code instead of bank clerks, accountants, and rigid rules.
According to DappRadar, the leading global dapp store and dapp data tracker, the DeFi apps have collectively generated nearly $46B adjusted TVL in the past three months, and nearly $118B in 2022 alone.
With more users seeking ways to protect their assets and make the most of them away from central authorities, the trend of DeFi is likely to grow and continue offering user-centric financial solutions.
What is DeFi?
DeFi or decentralized finance refers to the use of distributed ledger technology, typically blockchain, and smart contracts to design, sustain, and deliver financial services.
Contrary to traditional financial services, DeFi services are based on decentralized networks and do not rely on traditional, centralized financial institutions.
The more users use DeFi platforms, the higher the liquidity they generate, which allows more users to trade and exchange their assets.
What is the aim of DeFi?
Today, nearly everyone has a smartphone, but some people still lack access to either basic or advanced financial services. And even for the majority that does have a bank account, saving money in a bank has become less rewarding due to low interest rates or downright costly in the case of negative interest rates and rising inflation.
The goal of DeFi is to harness advanced technologies to deliver greater access to financial tools and support while lowering the costs of using them.
DeFi also aims to boost the transparency of financial transactions and increase the security of users’ funds and data.
With wider access, easier adoption, and better yields compared to traditional financial products, DeFi has redefined and democratized the way people exchange assets beyond borders.
What are the advantages of DeFi?
Contrary to traditional financial services that rely on a central authority, rigid institutions, and human decisions, distributed technologies paved to way for fairer access to financial services, thus empowering everyone with Internet access to take control of their digital assets.
These are some of the most notable advantages of DeFi.
High accessibility
To access and use DeFi apps and services, you only need a smartphone or personal computer with an Internet connection. Unlike traditional financial institutions, where you must go through lengthy processes to open an account, DeFi apps let you open one in minutes and without a KYC procedure.
Greater financial inclusion
Wider and easier access also empowers people who were deprived of traditional financial services before, millions of unbanked and underserved around the globe. Unlike banks and traditional financial service providers that do multiple checks before granting service to a client, the code running DeFi services does not discriminate based on a user’s financial history and allows anyone to access them.
Enhanced security
DeFi platforms are built using blockchain technology and distributed network of nodes. While traditional banks run their data systems on central servers, which are easier to hack due to the central point of attack, DeFi platforms are typically more resilient to tampering, hacking, or fraud.
Higher transparency
DeFi apps rely on code, smart contracts, and transparent protocols. This allows you to always check where your funds are, what’s their current value, and in what kind of products or services they are being used. Unlike traditional financial institutions, where you could find it difficult to track your investments whenever you please, DeFi and the transparency of transactions give you constant access to details about your assets.
Lower fees
Since DeFi platforms are powered by smart contracts, they collect lower fees compared to banks or traditional financial service providers. Contrary to large financial institutions, which need to cover enormous overhead costs of massive computing infrastructure, hundreds of franchises, and thousands of employees, DeFi apps are typically more affordable to use.
High efficiency
Thanks to end-to-end automation of financial transactions, which relies on smart contracts and blockchain technology, DeFi apps can deliver faster and more efficient financial services. Despite having launched digitized banking apps, traditional financial institutions are still hampered by standardized processes, like human authorization and limited working hours. DeFi platforms, on the other hand, deliver a much fast completion of initiated actions and an overall better user experience.
In a nutshell, DeFi has flattened out the traditionally hierarchic way of providing financial services and brought them to more people at a lower cost and with higher security.
What kind of services does DeFi offer?
The world of DeFi is vast and expanding. Primarily, the DeFi apps and platforms focus on delivering services that allow users to store, grow, lend or borrow crypto assets without a middleman intervention.
Some of the most popular DeFi apps and services are:
DEXs
Decentralized exchanges, or DEXs for short, allow you to buy or sell cryptocurrency or other assets like NFTs in a peer-to-peer fashion. Unlike centralized exchanges, your assets are transacted based on a smart contract and don’t rely on a central authority to enable or vouch for the transaction.
Yield Farming
With yield farming, you can stake the crypto assets that you don’t need at the moment, and earn interest by depositing them in a pool of crypto tokens — a pair or multiple. The yields you earn in the process serve as a reward for providing liquidity to the platform.
Lending and Borrowing
With decentralized lending and borrowing, you can lend or borrow digital assets or crypto coins based on terms set beforehand in smart contracts. Contrary to traditional lending institutions, fees are much lower thanks to low overhead costs, and terms of borrowing and lending are more user-friendly in offering greater flexibility.
Insurance
Blockchain-based insurance apps allow you to insure your assets with solid coverage for different types of threats. Unlike traditional financial services that could suffer hacks or security breaches due to a single point of failure, DeFi services can offer greater security and, thus, more affordable insurance against loss of funds and similar risks.
Payment processing
Thanks to DeFi, you can also make online or offline payments with your cryptocurrency or other digital assets. The payment process based on smart contracts often makes transactions faster and more affordable compared to those on traditional payment networks.
Of course, there’s more to DeFi. Overall, with a range of DeFi services, you can choose to either trade your assets, borrow or lend them, or leave them be and earn interest along the way. Whatever you choose, DeFi delivers greater access to financial autonomy with lower fees, higher transparency, stronger security, and better yields compared to what traditional financial institutions can offer.
How to start with DeFi?
In just a couple of years since its inception, the DeFi space has grown into a large ecosystem of platforms, apps, services, tools, and an ever-expanding community of users.
One of the easiest ways to start with decentralized finance is to enter a DeFi platform via a digital wallet and play around with different DeFi options in one spot.
Beamswap is one of the leading DeFi hubs, providing the most sought-after as well as more niche DeFi services. Built on the Moonbeam Network and perfected through strong collaboration with other DeFi service providers, Beamswap serves as an ideal gate into the world of user-centric digital asset management and growth.
Take the plunge and discover the best of DeFi in the Beamswap DeFi Hub.
About Beamswap
Beamswap is a DeFi Hub built on the Moonbeam Network featuring a decentralized exchange (DEX) and an automated market maker (AMM). It gives users the freedom of adding liquidity, performing peer-to-peer transactions, swapping fungible tokens, and earning passive income from staking and yield farming. Beamswap will support the growth of Moonbeam’s ecosystem and act as a launchpad for new projects developing on the network. Our team’s mission is to aid in the multichain vision to serve as a host for projects on the Moonbeam & Polkadot Ecosystem while working alongside projects with existing infrastructure looking to bridge into the multichain universe.
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