What is DeFi and what are the advantages over the banking system?

Each of us, of course, had to pay a commission for processing a money transfer, foraccount maintenance, or dealing with minimal balances and freezing accounts. It turns out that all these inconveniences can be circumvented with the help of DeFi (decentralized finance).

DeFi – this is a way to avoid paying extra,using more favorable interest rates, without large overpayments, without trusting personal funds to third parties, and without other restrictions. DeFi applications are not just more decentralized than conventional financial services, but are themselves far better than the centralized alternative.

Why adoption of DeFi is so slow

So why is acceptance so bad?slowly? After all, Bitcoin was created more than ten years ago, and during this time decentralized finance could already become a part of our lives. The main cryptocurrency positions itself as a reliable decentralized store of value in the long term, but at the same time is inconvenient to use in the short term due to high volatility.

In addition, its functionality is limitedpossibilities. Many people hold BTC in the hope that the coin will continue to grow, but in reality, this is all the capabilities of this coin. Okay, then what about Ethereum? It is a powerful smart contract platform that is great for building decentralized applications.

But Ethereum is even more volatile than Bitcoin, as evidenced by the Ethereum price fluctuation chart over the past two years:

DAI as part of DeFi

Decentralized application from MakerDAO underWith the name DAI, it was possible for DeFi to exist and thrive. DAI solves the biggest problem in cryptocurrency-based financial services – volatility.

While DAI is not the only one that is stablecoin in the crypto space, it was the first decentralized stablecoin on a blockchain software platform – Ethereum. Supported by Ethereum and pegged to the US dollar, its existence and support is completely decentralized.

The most important thing is that DAI was able to remainstable throughout 2018. Even as ETH fell from over $1,200 to under $100, a drop of over 92%, DAI was trading at around $1. With unrivaled stability and decentralized nature, DAI acts as a core component of the DeFi economy running on Ethereum.

Of the other DeFi that received special attention incrypto space – Compound project. Compound Finance – it is a decentralized lending platform that uses pooled liquidity instead of direct loans. Compound allows you to act as a high-interest savings account while lending with DAI.

While conventional lending platforms suchlike Bitfinex, require lenders and borrowers to agree on the terms of the loan, Compound project participants simply lend money to the platform, receiving automatic interest.

Interest rates on DAI ranged fromtoday's 4% to 15% in the summer of 2019. Compared to the rates on a regular bank account, borrowing money on Compound is much more profitable. The project aroused incredible interest. In fact, it was so popular that other Dapps started integrating it.

DeFi Integration

Perhaps the most powerful aspect of DeFi – It's not just about creating cool apps, it's about how easy it is to integrate them with each other.

Just as Compound used DAI to create a new use case, other projects are now using Compound to improve the functionality of their own applications.

PoolTogether – another example of collaboration to create new applications.

Using Compound in the backend, Pooltogether– This is a no-loss lottery. You put your money into a pool to buy lottery tickets each week. At the end of the week, if you win, you will receive the interest earned that week from the entire pool. If you lose – you keep your tickets – nothing is lost.

DeFi stands for decentralized finance, but it'sonly part of the story. When we look at the alternatives in traditional finance, it becomes clear that DeFi is not just more decentralized, it is much better than them.