What is DeFi?
DeFi are financial instruments in the form of services and applications built on the blockchain.
The main goal of DeFi is to become an alternative to the banking sector by implementing open source protocols. That is, open access to decentralized lending and new investment platforms for a large number of people. And let them receive passive income from cryptocurrency assets, as well as save on fees for transfers, loans and deposits.
Most of the existing DeFi are built on the Ethereum blockchain, and the most famous project is MakerDAO, a decentralized lending protocol.
Advantages of DeFi applications:
- Any user can get one or another financial service, for example, lending, bypassing the bank.
- Decentralized landing protocols minimize risks and open access to borrowed funds 24/7.
- The procedure for creating your own digital asset and its introduction to the market has become noticeably easier and has become available to almost everyone.
- Payment processing does not last several days, but a maximum of a couple of hours
- interest rates and commissions have become much lower.
- For developers, the ease of creating applications is becoming a clear advantage due to transparency and open source, in addition, DeFi projects can be developed on any platform that interacts with smart contracts.
and disadvantages:
- in times of high volatility, DeFi users will have to pay higher commissions to timely fulfill the necessary obligations to services, which in turn can lead to a sharp increase in commissions or to massive liquidation of assets.
- the risk of hacking smart contracts, since there remains a need to trust the smart contract code that is written by a person.
- centralization of data flow.
- DeFi loans are inferior to loans in the traditional finance sector, since the amounts that can be obtained with the appropriate collateral are relatively small.
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