A Simple Guide to Understanding the World of Decentralized Finance (DeFi)

DeFi Tokens!

You must have heard about them by now. Or you’ve seen people use these tokens for payment.

Think of them as programmable money.

Sounds weird, right?

I mean, why programmable money? Stay with me.

With the traditional finance system, you’ve got to trust some companies (banks) with your money. Furthermore, you have no control over how your money is spent when it is with them.

Besides, your money is still susceptible to inflation. That is, your savings get devalued day-in-day-out. That is scary, especially if you stay in a country with a bad economy like mine (I trust me, I know).

All these added to the need for a decentralized financial system. This is where Defi tokens come in.

Sounds interesting, right?

I was fascinated by it as well when I stumbled on it. But there are still several unknowns about this new system and Defi coins.

So, I bet you want to know more about them!

That’s why we’re going to look at Defi coins in this piece. This article will cover what you should know about DeFi tokens as a beginner.

You can think of this as an easy guide to introduce you to DeFi (like a first course before the main meal).

What is DE-Fi?

Defi simply means Decentralized Finance. The term “Defi” is a collective name for financial services and products available to anyone using the internet.

The Decentralized finance system makes it possible for sellers, buyers, borrowers, and lenders to interact directly through software written on blockchains.

Keep in mind it is “decentralized,” so there are no central bodies to control who has access to financial systems. With DeFi, nobody can block your access to anything, that is right! You can’t lose access to your money for no reason — unless you lose your wallet key.

How Do Defi Tokens work?

So, DeFi tokens are here to replace the traditional method of payment. They are built on blockchain technology using smart contracts. Therefore, your financial activities don’t require any Intermediaries (banks or brokerage).

Imagine it! The world of banks and brokerages is replaced with a smart contract. Finally, you can have a complete control over your money.

Defi tokens consist of peer-to-peer protocols and applications. This decentralized blockchain gives you access to trading, lending, or borrowing financial tools. It can even serve as a means of paying for a commodity you bought.

Smart contracts are automated agreements; they can be accessed by anybody. All you need is an internet connection. Smart contracts give the framework for the DeFi apps operation.

How?

For example, if you lend someone some money, the smart contract has specific code that specifies the exact terms and conditions of the loan. If those terms are not met by the specified date, the collateral may be liquidated depending on the agreement.

Do you want to know the best part?

You can also trade Defi tokens like other cryptocurrencies to increase your capital/savings. Moreover, your capital will keep increasing if the market price of your coin keeps rising.

That is right, you can grow your money without doing anything.

DEFI Tokens — A Short History

Historically, central authorities such as banks underpin our economy by issuing currencies. Although this system controls the economic systems, however, they’re centralized. And when there is a central body that regulates the money, several risks are involved.

Take, for instance, the global financial crash of 2008; many people were affected. As a result, several people lost their life savings and investments.

This is an example of how a centralized financial system affects people badly. That is why there is a need for Decentralized finance (DeFi); that allows you to directly control and monitor your money.

Then Cryptocurrencies came into existence. Bitcoin was supposed to be a decentralized financial system; you carried out transactions without restriction.

However, there was still a problem! The crypto market for these coins was just too volatile — It can rise and crash at any time.

So, there was a need for more stable coins — new and innovative means of handling money. With this, Defi tokens were created.

The first type of Defi token was developed through the Ethereum application. Co-founded by Rune Christensen, it is known as MakerDao. This was the first to get recognition in the world of decentralized finance. And it is also one of the largest DeFi token. Since it was developed, investors have put in more than $30 billion assets in the system.

Why Should You Use Defi Tokens?

  • Escape Inflation

If you can’t trust the buying power of your currency, there is no need to save with it — unless you want to reduce the value of your savings. The Defi network offers you a way to escape inflation and devaluation.

  • Take advantage of the Booming cryptocurrency market

The crypto economy is booming — and it’s still at the early stage. So don’t miss the next big thing! With DeFi tokens, you can lend, borrow, trade, and earn interest all on the blockchain network. Think of it as building generational wealth.

  • Send money anywhere quickly

You can transfer money anywhere, anytime in a matter of minutes by using DeFi tokens. The crypto market is always open, so no time restriction. Also, you don’t need to wait for days before your transaction gets processed. It happens on the blockchain network, and once you get your confirmation, you’re good.

  • No Restrictions

There are no restrictions! Anyone can access financial services with Defi tokens. No need to worry about your age or identity. Besides, you can move enormous amounts of tokens anywhere without worrying about increased transaction fees or restrictions.

  • Control Your Money

The Defi network gives you complete control over your money. It is sitting in your wallet, and you have direct access to it if you have an internet connection. No need to worry about any financial institutions mismanaging your money.

  • Transparency

Defi tokens are also built on transparency. That means you can see what is going on the blockchain network at any time. You can track your transactions without having to consult anyone.

  • Privacy

Although all transactions are private, you still get to protect your identity. All transactions involve a wallet address — a long string of characters. There is absolutely no way of tracing your wallet back to you unless you reveal it yourself.

Decentralized finance is gradually evolving and bringing with it numerous opportunities. The Defi network exists to altogether remove intermediaries between transacting parties. And that is not all!

Transacting with Defi coin is fast and efficient. And the sheer volume of transactions you can handle with them is mind-blowing.

But keep in mind that DeFi is still at the beginning stages. The system is still susceptible to infrastructural mishaps and hacks. So, be careful!!!

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Toluwalope Ajetunmobi

Toluwalope Ajetunmobi

Freelance Writer| Top-rated SEO writer on Upwork. I like to write about marketing, business, and finance. https://www.upwork.com/freelancers/~0193c274704939c296

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