What is Defi?
Decentralized finance an umbrella term for financial services on public blockchain, primarily Ethereum. In Defi there are no bans but there are pieces of code that act as a bank they are open to anyone. They are much cheaper than traditional centralized finance. With DeFi you can do most of the things that banks support earn interest, borrow, lend, buy insurance, trade derivatives, trade assets, but it’s faster and doesn’t require paperwork or a third party. As with crypto generally, DeFi is global, peer-to-peer (Directly between two people, not routed through a centralized system), pseudonymous, and open to all. Decentralized is built on main three things Cryptography, the blockchain technology and smart contracts.
Five pillars of Decentralized finance
1. Stable coins
2. Lending and borrowing
3. Decentralized exchanges
5. Margin trading
Characteristics and importance of DeFi
DeFi revolves around fixed systems, also known as DApps that perform financial functions on distributed servers called blockchain, a technology that was first introduced with Bit coin and has since been widely exchanged. Rather than transactions made through a central intermediary such as crypto currency exchanges or traditional currency exchanges on Wall Street, transactions are made directly between participants, smart contract arbitrators. These smart contract programs, or DeFi agreements, usually run using open source software developed and maintained by the developer community.
DApps is often accessed via a Web3-enabled browser extension or application, such as MetaMask, which allows users to interact directly with the Ethereum blockchain via a digital wallet. Many of these DApps can work together to build sophisticated financial services.
Three years later and DeFi is big business. A user with a crypto wallet can trade digital assets, get loans, or take out insurance, among many other things. Some $90 billion of collateral is locked up in these services, and more than 10 million people have downloaded MetaMask, one of the most popular digital wallets used to open up access to these networks. The roots of decentralized finance come from the 2008 bitcoin whitepaper that set out the framework for a novel system for digital cash.
Coding and hacking errors are common in DeFi. Blockchain transactions are irreversible, which means that improper or fraudulent transactions on the DeFi platform cannot be easily remedied.