Introduction to Decentralized Finance and its Exchange

Introduction to DeFi

Decentralized Finance DeFi for short can be define as financial application programs that are design and built on blockchain ecosystem to allow digital transaction between two or more parties. The blockchain can be refer to a public ledger which enable digital assets which also include cryptocurrencies.

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DeFi has a lot to offer in cryptocurrencies such as sending crypto, investing in crypto and even lending crypto to any user within the blockchain. Been decentralized makes DeFi a perfect application to conduct digital transaction because you are your own boss you do not have to sake for permission from anyone before going ahead to either send, lend or invest your assert.

DeFi major aim is to allow the transfer of value digitally in a safe, open and transparent system without the need for a third party intervention such as bank or any monitory organization but with just the agreement of two or more parties. With the absent of middlemen, everyone can perform transaction with any barriers and this will promote the global financial system.

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Popular Types of DeFi Application

-Decentralized Exchange (DEXs): This application basically allow user to swap a given currency to another currency. For example USTD to BTC or BTC to ETH. This gives users direct link to swap any owned cryptocurrency of his/her choice.

-Stablecoins: These are coin linked to a non-cryptocurrency asset such as USD, GBP and EUR for the purpose to keep price it price at a stable level.
Lending Platform: Smart contracts are use in order to eliminate any need for third party and this drastically reduce transaction fee.

-Wrapped bitcoin (WBTC): This is a process use in order to smoothly transfer bitcoin to Ethereum network in order to use the bitcoin in Ethereum DeFi mechanism directly.

-Prediction Market: As the name implies it allow users to predict the result of an upcoming event and bet on it. These event may include sport prediction or election result. This market try to mimic the normal betting application we have but in this case without any intermediaries.

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DeFi Exchange

DeFi exchange do not usually provide a protected wallet but what it does is that it allow you to connect to your various secure wallet using Web3 platform which allow a browser extension application or maybe a some application such as Coinbase wallet, MetaMask and Binance Chain wallet, so after you have successfully connect to your wallet, what DeFi exchange does it that it allow you exchange any cryptocurrency in an easy-to-use, simple interface found on most DeFi exchange.

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Top DeFi Exchanges

1. dYdX with a market share of 28%.
2. Uniswap with a market share of 19.8%.
3. Pancakeswap with a market share of 12.1%.
4. 1inch with a market share of 6.8%.
5. Sushiswap with a market share of 3.9%.
6. Honeyswap with a market share of 3.1%.
7. MDEX with a market share of 2.25%.
8. Traderjoe with a market share of 1.1%.
9. QuickSwap with a market share of 1.0%.
10. DODO with a market share of 0.7%.

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These above listed exchanges are the top 10 DeFi exchange out in the market.

Advantages of DeFi

-Elimination of Human Error: DeFi uses smart contract for transaction which remove the need for any central body, this has eliminate the risk of human mismanagement as we use to see in the centralized system of transaction.

-Quick and Permanent access: Before the arrival of DeFi when you need a loan you need to go to the bank and conduct series of interview for money security purposes but one of the highlight of DeFi is lending which gives loan access to any user within short period of time.

-A Healthier System: This is an aspect the centralized system fail badly at. A single point of failure can render a whole linked network useless. And we have seen some situation where banks run out of cash and users has to come back another day to have access to their own money.

-Permissionless Operation: Using DeFi you are in charge of our asserts you can do as you please without been questioned or your account been frozen because no one has the authority to do that.

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Disadvantages of DeFi

Many problem DeFi is facing now is related to technology and been a new financial system, a lot of development is ongoing to make it better day by day.

-Uncertainty: We encounter this problem in situation where by if the host blockchain of the DeFi project is not stable, the project will also inherits this unstableness.

-Scalability: This is also a problem is DeFi project. In order to balance incoming and outgoing assert they is a ratio that must not be exceeded so this may cause delay in order to confirm a transaction and also transaction fee may increase when they is congestion.

-Smart contract problem: Smart contract is so important in DeFi project and it has be 100% accurate all time, if they is a little flaw in smart contract code this may prove very costly.

-Lack of Insurance: They is no any insurance policy when it comes to DeFi so a user has to be very careful in what type of wallet he saves his asserts on to give no room of any hacking.

CONCLUSION

DeFi project is here to change the way transactions are done around the world and been relatively new when compare to the normal centralized system we are used to, I think it has been able to make a lot of progresses and in the nearest future I see most if not all listed disadvantages eliminated.

Thank you all for reading bye.

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