Decentralized finance is one of the big industry verticals in crypto and blockchain. However, the “what is DeFi” question remains ever-present, as many people remain uncertain about its appeal. New and innovative technologies are tricky to keep track of, although one can’t deny the growing popularity of decentralized finance.
Answering The “What Is DeFi” Question
DeFi refers to decentralized finance, an emerging industry where people access a new generation of financial products, services, and protocols. Rather than relying on intermediaries like banks, everything occurs peer-to-peer. Cutting out the mediators keeps costs to a minimum for all users and ensures more transparency. One can access most features in traditional finance in a DeFi environment, including lending, borrowing, interest-bearing accounts, etc.
However, there are some crucial differences to note. DeFi relies on blockchain technology and supports various cryptocurrencies and digital assets. More importantly, decentralized finance solutions are more transparent, cheaper, more efficient, and faster. As there are no middlemen to rely on, approval can occur within hours or minutes, creating a far better overall user experience.
Another thing to consider when wondering “what is DeFi” is the accessibility of financial products and services. More specifically, the traditional finance sector can prevent users from accessing specific tools for various reasons. With DeFi, everything is more accessible, whether it is a small loan, insurance, or anything else. Decentralized finance can empower billions of people once it gains mainstream traction.
Peeking Under The DeFi Hood
As no human intermediaries are involved in decentralized finance, some may wonder how it all works. Unlike traditional finance, DeFi relies on smart contracts running on the blockchain. These contracts conduct actions automatically and around the clock, allowing users to interact with them 24/7/365. There are no business hours, holidays, or other inconveniences to consider. For those wondering “What is DeFi,” it is open finance anyone can access regardless of time, date, location, or credit score.
To interact with DeFi protocols, you will need a secure digital wallet. Opting for a non-custodial wallet like MetaMask or Trust Wallet is one’s best option. No one but you should control the funds you are spending or holding, and non-custodial wallets perform that job admirably. Moreover, wallets like MetaMask and Trust Wallet work with most DeFi protocols across multiple networks, including Ethereum, Solana, Cardano, BNB Chain, etc.
Notable Features And Benefits
A curious addition to the DeFi industry is stablecoins, digital assets pegged to the value of $1 – or 1 unit of foreign currency. Several issuers exist in this space, including Tether, Gemini, and Pax. A stablecoin can never deviate from its peg to fiat currency by more than a few cents, making it a good asset for trading and other DeFi-related purposes. Some people will answer “What is DeFi” by saying it is a “stablecoin heaven”, although there is much more to it.
Other notable features in decentralized finance include:
- Decentralized exchanges (DEXes)
- Decentralized lending platforms
- Yield farming aggregators
It is also possible to access decentralized finance through centralized exchanges, like Binance. The platform allows users to access DeFi features – primarily designed to earn rewards and passive income – without users leaving the ecosystem. It is an appealing option for those new to cryptocurrency and seeking an answer to “What is DeFi”.