All About DeFi in Simpler Words
We are living in a time where we can see the bright future of cryptocurrency pretty clearly. 2021 has turned out to be a very progressive year for cryptocurrency. Not only cryptocurrency but other uses of blockchain are getting popular too. This technology is expanding every day and there does not seem to be a stop to it yet. Every system that is based on blockchain helps humans have a decentralized arrangement to get things done. Especially with the current demand for cryptocurrency, there is more requirement for systems that operate with blockchain technology. DeFi is one of those decentralized networks that is gaining popularity.
What is DeFi
DiFi is a blockchain-based decentralized finance system. This system works independently and does not require any authority to handle it. There are no credit unions or banks to keep an eye on DeFi. the consumers of DeFi are free to move their money through transfer, transaction, or investment. DeFi works like cryptocurrency and is based on a peer-to-peer system. It handles the transfers of your digital assets and cryptocurrency. It creates smart contracts that are automated to perform the transfers. There are no huge money deductions on these moving and the system is much faster than traditional centralized banking.
DeFi is a very advanced system of finance handling. Blockchain technology is also a step ahead in the use of DeFi. The overall system is more clear and transparent too in comparison to the traditional finance management system.
Integrals of DeFi
The basics of DeFi are as simple as understanding any financial system. It is based on the cryptocurrencies that are stable. DeFi is a perfect system to lend and exchange cryptocurrency. The terms and conditions for the loan and transfer are done using the automated smart contract. This eliminates any bank or authority to handle the contract. Instead of middlemen, there is this code that protects the agreement from the breach.
DeFi works on multiple layers. These layers define how DeFi handles different financial situations.
The layer of Settlement: it is the first layer of the system. All the settlements that are done by DeFi stand on this layer. The overall base is blockchain, the same as cryptocurrency. All the settlements are done with the use of cryptocurrency. It is not necessary that the cryptocurrency is used in the market or not. DeFi works through the apps that are called ‘Dapps’. The native currency of DeFi is ‘Ethereum’.
The layer of Protocol: This layer deals with the protocols that are done within the software. These protocols are simple and their primary function is to make sure the authenticity of activities happening within the system. If you compare it with the traditional financial system then these are basically the conditions that both parties consent to observe.
The layer of Application: this is where all the applications happen. All the settlements and protocols get entertained in this part of the dapps. The services provided in this section have their major focus on the consumer of the services. All lending and exchanging of cryptocurrency are performed in the layer of the application.
How can you use DeFi
As we have mentioned that the native cryptocurrency of DeFi is Ethereum. A big number of DeFi based apps deal with Ethereum. Billions of dollars are exchanged in the form of this cryptocurrency using DeFi.
All you need to do in order to use DeFi is choose any dapp and sign up for its services. You can use this platform to make passive income. As most of the system of DeFi is based on the lending of the money, you can lend or invest your cryptocurrency here and it can give you yield on a monthly basis.
This can be a very profitable investment. There are no middlemen where you have to pay charges and your work will still be done. Peer-to-peer dealing is the future of financial management and it is better to get on the bandwagon as early as possible. Cryptocurrency is reaching its highest point since its first release and this is the right time to milk this cow.
There are few top-rated DeFi apps and only those apps deal with 35 billion dollars every 24 hours. You can understand the progress from this number only. The number of DeFi users is increasing on a daily basis.
Benefits of DeFi
The world has come to this point where everyone agrees with the importance of peer-to-peer blockchain-based financial systems. Finance experts are calling cryptocurrency the future of money. The reason for all this progress is the decentralized system that is flexible but also provides security to the consumers.
Here are some benefits of DeFi:
- The exchange and transaction are super fast in the DeFi.
- You can perform your financial task anywhere through the apps. The use of cryptocurrency was never this easy before.
- The charges of transferring money are extremely low. They give real competition to the conventional banking system.
- The interest rate on the money you lend is very high. Your assets get you a good deal of money in DeFi.
- The terms and conditions of taking loans are also very easy and doable for the consumers, unlike conventional banking where the loans are extremely hard to take.
- It provides the services regardless of your geographical position which means even if you are in a politically unstable area DeFi will provide you services.
Future of DeFi
Looking at the progress it has made in the small-time the future of DeFi looks very promising. The time has come where the world is already dealing billions of dollars through cryptocurrency. There is so much progress in the field. There is the market of NFTs and digital gold too now. Many countries are facilitating the use of cryptocurrency and making their own banks that are blockchain-based.
In all this situation DeFi is the main key. It is making the use of cryptocurrency easy for he consumers. By catering to organizations and individuals it has proved to be a technology that is here to stay.