What is Decentralized Finance (DeFi)?

Decentralized Finance (DeFi) – these are projects that combine traditional banking services with technologyblockchain. If the crypt – alternative currency, then DeFi – alternative financial structure.

DeFi Developers Strive to Create an Alternativeevery financial instrument and service available in the traditional banking system. The DeFi ecosystem includes savings services and checking accounts, loans, asset trading, insurance, and more.

DeFi is currently the fastest growingsector in the blockchain. Decentralized finance plays an important role in the development of the financial sector, expanding functionality and access to money, since all that is needed to participate – This is a smartphone with Internet access. 

Analysts consider this sector to be one of the most important and promising in the crypto space.

How DeFi Apps Work

Consider the principles of decentralized finance systems and their components.

Open source

The source code for the DeFi app should be inopen access. Anyone can check its functionality and, most importantly, security. This provides more confidence that hidden malicious coding is not running in the background while using the DeFi app.

Transparency

Since most DeFi applicationsoperate on public blockchains such as Ethereum, all transactions are publicly available. Accounts are pseudo-anonymous and contain only numeric addresses, but if necessary, it is possible to find out who they belong to.

Global audience

DeFi has the opportunity to provide undevelopedcountries access to financial services. This is a huge overhaul of the existing banking system, which currently leaves about 40% of the world's population unbanked.  

Cross-border

Anyone can develop the DeFi app and offer its services to the world.This strategy is far from the financial system today, which requires potential users to go through many regulatory review systems before they canparticipate in the global economy.

Interoperability

Developers can easily create their productsDeFi building on previous developments through seamless integration of DeFi apps. In addition, these apps can integrate stablecoins, decentralized exchanges, wallets, etc.

What is DeFi for?

1. Lending – lending

The DeFi community has developed several ways to obtain loans without the participation of intermediaries in the bank or financial institutions using non-casual landing protocols.

The first such application was MakerDAO.Later there were other protocols - Compound, Fulcrum, Aave, and Fulcrum.They allow you to offer your cryptocurrencies to other users in exchange for interest.These platforms use smart contracts that automatically make interest adjustments depending on thecurrent market conditions.

2. Decentralized Exchanges (DEX)

DEX - peer-to-peer trading platforms –provide a higher level of security, anonymity and greater flexibility. Traditional exchanges operate through a centralized organization that controls and approves all transactions on the platform.

DEX never holds assets directly, but uses Smart contracts to make applications to buy or sell assets.

The decentralized exchange Uniswap usesan innovative mechanism known as automated market creation. This protocol allows for almost instantaneous settlement between parties. The protocol is set up to close trades as close to the current market value as possible. 

3. Decentralized Staplecoins

New stablecoin model,  collateralizedcryptocurrency. The most successful project to date has been MakerDAO and its decentralized stablecoin Dai, released on Ethereum. Dai tokens represent a secured debt to MakerDAO, and the collateral is a certain number of ERC-20 tokens sent to the smart contract.

4. Peer-to-peer Prediction Markets

The forecasting platform is used to analyze current public opinion about a particular event and to bet on it.

In addition, the DeFi sector is actively developing and experimenting:

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