DeFi is the general name given to decentralized finance transactions consisting of decentralized and finance words. DeFi is the name given to financial structures that are not connected to any center or authority.
Systems such as Bitcoin and Ethereum without a certain decentralized and decision-making authorities are ideal examples for DeFi. However, since financial instruments are not limited to sending and receiving money, it would be appropriate to think about more advanced financial functions when DeFi is mentioned. These include borrowing, lending, decentralized exchange, insurance, shopping, marketplace and the like. For those that enable such more advanced features, Compound (COMP), Kyber Network (KNC), 0x (ZRX), Bancor (BNT), Synthetix Network Token (SNX), Maker (MKR), Uniswap (UNI) and Aave (LEND).
DeFi structures should have elements that reassure their users. Although a decentralized structure sounds interesting, it can also be used for bad purposes. The Bitcoin DeFi structure is secured with an unbreakable and unchangeable mathematical formula.
All DeFi systems must have a cause-effect relationship. The processes that can be done are clear and it is clear under which conditions which operations will be performed. For this reason, Smart contracts, decentralized applications and consensus protocols have an important place in DeFi systems.
For What Purpose Did DeFi Come Out?
DeFi was launched to build a more democratic financial system after cryptocurrencies emerged for freedom. Another most important goal of DeFi systems is to enable people who do not have access to traditional financial systems to do financial work.
Approximately 1.7 billion people in the world cannot access the traditional financial system, that is, banking transactions. DeFi systems aims to access these people, which the current financial system cannot reach.
Although there are physical barriers to accessing banking systems, people’s distrust of banks, which are generally central, is important.
What is the DeFi Difference?
DeFi enables people who cannot trust the bank to perform their banking transactions not by an authority but through an algorithm created by the system. It allows you to do this with millions of devices connected to DeFi networks over a certain formula. Therefore, it is impossible for a center to intervene in DeFi systems. Those who use the system also ensure that the system can work.
In general, the advantages of DeFi systems are:
It has enabled decentralized stock markets to emerge.
It has ensured that money based banking systems are used by everyone.
It is provided to make borrowing and lending transactions between users.
It has enabled the introduction of a new cryptocurrency to the market and the ability to raise funds for projects.
It has enabled new usable financial instruments to be made available with DeFi.
What is the Advantage of DeFi Systems?
After the 2008 crisis in the world, many people had a mistrust towards banks and state central banks. The dominance of a center in all financial instruments, monetary policies and a system where even banks could lose money at any time were criticized.
The ability of governments to print unlimited money and change valuations increased people’s interest in systems where no one can interfere with a certain formula.
Bitcoin has been the most important asset to emerge in this field. It was a decentralized DeFi structure that could be used and managed by thousands of people.
What are the Uses of DeFi?
DeFi claims to offer a better system than traditional financial systems. For this reason, there are areas of use that are more advantageous than traditional financial systems. These are in general terms:
Being able to make very cheap, fast and secure money transfers anywhere in the world.
With the borrowing systems established, users can both borrow and lend.
Ability to tokenize an owned asset. Thus, it gives a value to that asset and enables it to be transferred.
What are the Disadvantages of DeFi?
DeFi will radically change the traditional understanding of finance in many ways. Being at the beginning of this change still causes open places in some areas of this system.
DeFi systems have two aspects that may be missing right now. Although it aims to be available worldwide, there are very few people currently using DeFi.
As a second problem, so many transactions must somehow be preserved as data. There is no sufficient infrastructure for the preservation of this data.