Definition about DeFi
Decentralized finance (DeFi) is an emerging financial technology based on secure distributed ledgers similar to those used by cryptocurrencies.
DeFi applications aim to recreate traditional financial systems with cryptocurrency. Instead of financial intermediaries such as brokers and banks, everything is automated through smart contracts. Most run on the Ethereum blockchain. In general, decentralized exchanges can facilitate transactions at no great cost.
DeFi or CeFi?
The choice between centralized (CeFi) and decentralized financial (DeFi) systems depends solely on the interest of the user. They make a choice: trust people or technology.
CeFi — Users rely on the people behind the business and on the governing laws.
DeFi — Users rely entirely on technology, code, and encryption algorithms.
Borrowing and lending are among the most common use cases for DeFi because of interest rates and the barrier to entry to borrow is low compared with that of a traditional system. In most cases, the only requirement to take out a DeFi loan is the ability to provide collateral with other crypto assets, for example their NFTs
However, these factors also contribute to why DeFi is much riskier than a traditional bank.
Further in addition to credit there are many more increasingly complex options too, such as becoming a liquidity provider to a decentralized exchange.
So, how does DeFi work?
Speaking from the point of view of an IT specialist, for DeFi to work, it needs a decentralized infrastructure to run on. Here the Ethereum or Solana blockchain comes into play. Users on the blockchain can interact via smart contracts. This allows decentralized applications (DApps) with smart contracts to be downloaded and run autonomously, but you have to pay gas for this. Gas is a unit that measures the computational effort required to perform a transaction on the network. It can be thought of as a settlement fee needed to be paid for transactions on the Ethereum blockchain.
Why do we need DeFI?
- No bank fees
- Instant transfer of funds
- Safe Digital wallet
- As the world evolves post-coronavirus, we are slowly beginning to understand that digital currency is here to stay.
Staking — to stake tokens, receive rewards, and participate in a marketing campaign from partners.
Pharming — to receive rewards in the form of redemption of platform tokens.
Besides that, for the operation of this platform, 2 tokens were created, the possibility of staking them, the IDO platform was launched, a bridge was developed between the two blockchains (ETH-BSC), and an algorithm was built to form the vesting period.