DeFi (Decentalized Finance) is an evolving smart financial technology that saves one’s time and money as it cuts off the options of central banks or lenders and one doesn’t have to stand in long queues. We are living in a world that is leading towards advance technology and it’s high time that we adapt to it and Defi is one step towards it. So let’s learn about this technology together.
What is DeFi (decentralized Finance)?
This is a growing financial technology based on the decentralization system used in cryptocurrency known as DeFi. It is similar to the distributed ledger system used in blockchain in cryptocurrency. It also removes mediatrices like financial institutions, banks, brokerages and financial services.
For Instance, “X” wants to send some money around $40 to “Y”, he started a transaction of $3o, a request raise to their bank, bank will validate the data, cut the transaction charges and send money to “Y”. DeFi will fast the process of transaction and reduce the extra cost as well. No mediator, no bank will manage the records and all data will be stored in the blocks of blockchains.
It allows a more transparent and equitable financial system for everyone. User will be capable to transfer, invest trade money peer to peer using cryptocurrencies and any digital assets.
It is appealing because:
- It cut off intermediaries like banks and cut off the extra fees charged by the middleman.
- Money is kept safe because of smart contracts in a digital wallet.
- One can easily transfer funds, even lend and borrow funds, trade cryptocurrency and earn interest.
- The software and hardware are very stable and safe to use.
Hence, one upholds more right over their money through defi application. Because of personal wallet and trade facilities.
Let’s Understand the History of DeFi:
Major growth of Defi had started in 2017, but slowed down due to some variants. But it was speed up and come in existence again in 2020. In 2022 it’s growing to be an important year as various companies and countries are planning to launch their personal digitized wallet.
Year 2017: It all started with Ethereum as it created a hype as it was based on smart contracts which are based on Defi.
It came into the big picture with MakerDAO, a DeFi lending platform based on stable coin.
Year 2020: Gifts and rewards to lenders and borrowers of cryptocurrencies were given by Compound Finance. Also later by 2020 Defi is said to contribute up to two thirds in the cryptocurrency market.
Source: Youtube(99 Bitcoins)
Defi has also led to an increased number of developers in Ethereum by 2020.
How does Defi work?
Defi is based on a decentralised system(Dapps) which creates blockchains. The transactions are directly made between the applicant’s controlled by smart contracts.
Defi (decentralized finance) uses an open source system which is a system which is developed and maintained by a community of developers. As it uses Dapps the defi are written in specialized languages like:
Ethereum: Solidity
Cardano: Plutus and Marlowe
Solana: Rust, C++ etc.
Defi also uses Uniswap, a DEX which helps in trading of tokens credited on Ethereum.
Applicants pay through liquidity pools which are exchanged with your percentage fees earned by swapping tokens.
Defi uses blockchain technology, a record of transactions is maintained and verified automatically, however new blocks keep on making and updated with previous blocks information such as hash and unique ID. A blockchain is created as blocks keep on linking. Hence transactions are safe as blockchain can’t be altered. Because if someone will try to make changes in any one block, then they need to make the changes in all blocks because one block contains the information of previous block.
How to invest in Defi?
Till now you have been well versed with defi, what is DeFi? Why DeFi finance system is good? Now, let’s break your doubt about how to invest in Decentralized finance. So let me give you a quick guide. It is a quite easy process which can be beneficial for one’s future.
Prepare a wallet: One needs to have a digitalized crypto wallet , where all your coins are stored which are essential elements to participate in defi.
Buying crypto coins: Just like you need oxygen to breathe, you need crypto coins to participate in Defi protocols.
Follow the protocols: There are various protocols which have made defi popular like lending and borrow of crypto, liquidity pools and getting reward for crypto
Locate your defi : After following the above steps one can easily track their defi especially crypto and control your assets.
P2P( peer- to- peer) transactions are used in Defi which states that two applicants are ready to trade their cryptocurrency or assests.
Source: Youtube(Louis Thomas)
Where DeFi Can be Used?
Its an evolving technology and people are using in it various ways for various options, but there are sectors where inclination is more some of them are:
- Lending: With Defi involvement it’s easy to lend out your crypto and earn interest on them and get rewards.
- Loans: As defi enables liquidity pools it’s easy to get loans quickly without much paperwork. Even for a shorter period, which is quite difficult to get.
- Peer to peer : With this technology trading of crypto assets is possible without intermediaries between the two applicants.
- Savings: It can prove to be a great help for your future as you can get better interest rates than banks on your crypto savings accounts.
Also Read: Nischal Shetty Net Worth
Advantages of DeFi or Decentalized Finance
An individual has control over their Defi and loans are also applicable even on your assets earned through defi unlike banks.
The transactions are affordable, transparent and easily accessible. It also enables one to invest in physical assets.
Open source network: As it is an open source network it is easily accessible. You just need to open an account through your wallet.
Incognito: No kind of personal and private information is needed like name or email address etc.
Flexible: It is very flexible, your assets can be easily moved anywhere and anytime without much permission.
Transparent: As it uses a decentralised system and is an open source network which means it is run by users, each and every process is transparent.
Fast: The process of getting a loan and transaction is very fast. And interest rate and rewards are updated quickly.
Get Some Knowledge About Defi Tokens & Coins:
Defi uses cryptocurrency for transactions. This technology is still in its peer base and evolving so, it’s difficult to say which cryptocurrency will be implemented and how. However the cryptocurrency which is in quite hype for Defi protocols is stablecoin.
Going with Defi coins they are digitized resemblance to Fiat coins. Value is assets transferred during financial transactions.
Some common Defi coins are: Uniswap, Maker, Compound, Aave etc.
Defi tokens: They are almost similar to defi coins only difference is that the assets value is not always transferred in a financial way. Also tokens can be created on the current blockchain network also. Apart from financial assets, tokens can be used in physical assets like in real state or in NFT or as a password.
Types Of DeFi Wallets
Defi Wallet provides applicants right over their assets and is a safe method for your assets.
The users have complete power in their hands in case of Defi wallets which is quite opposite to that of traditional banks, where a lot of process is required.
Also, defi wallets removes intermediaries further keeping it between involved parties. Then it’s quite compatible and safe because of the private key and users have to be responsible for their private key. One has full control over their wallet funds.
Meta Mask
It is just a web browser that can also act as a defi wallet that gives an easy access to defi wallet through the internet. Easily accessible on phone, computer etc., through a web browser. It also supports various defi tokens like Ethereum, binance etc. It is a versatile wallet
Eidoo
It is one of the best options as it is a multifunctional crypto with a wide base as it supports various defi tokens almost 100 types of tokens alongside cryptocurrency like Bitcoin investing etc. It also supports exchanging of defi, liquidity pools and NFT. It’s widely acclaimed Defi wallet, because of edioo card which is almost similar to visa debit with a lot of exciting cash back offers.
Coinbase wallet
It is a non custodial wallet of coinbase . It supports a wide variety of cryptocurrency and allows users to experience and interact with the vast quality of Defi apps. You can easily transfer your assets, easily sell and buy them.
It is secured with biometric sensors like a six digit pin for using your assets.
Trezor
It is a typical cold wallet and has two models.
First Trezor one- it is good in terms of affordability while the second one Trezor Model T – Its feature is higher end pricing. Though both the models are quite secured. It also uses a pin generation system with touch screen input facility on Model T.
Argent
No kind of paper bucks are needed in it, also a free transaction. It has become the first mobile based app. It also enables meta transactions and is a perfect option for Defi wallets.
Also Read: Top 5 NFT Gaming – Play to Earn
How to Buy DeFi Coins?
One can’t purchase defi solely, they need to buy crypto currency on decentralized exchange and the most common preferred option is ETH ( Ethereum). First purchase it, then you can use it to buy Defi. Also you need to have a self custodial wallet. So let’s have a quick glimpse of the process .
- Download a wallet: One needs to have a wallet (self custodial) to purchase a DeFi.
- Wallet username: It depends upon the settings of Wallet itself which company’s wallet you are using. Some crypto asks for username while some not.
- Security application: The next process is the recovery phase which is the key of your crypto.
- Ethereum fees: The fees depend on various factors like transaction time, network etc. Then buy an ETH. The process of transferring ETh varies from Wallet to wallet.
- Use ETH buy Defi : After transferring your Eth into your wallet you can use them to buy defi tokens and coins.
How to withdraw money from Defi wallet?
The process is quite simple and Defi can be used in various applications like you can transfer defi token or coins to your attached saving bank account and later you can withdraw money from there. Also you need to convert the currency into Fiat currency, it’s just like exchanging your crypto for USD, EUR etc. Once the process is completed then you can withdraw or transfer the money from the bank account, the money might take time to land into your account, depending on the amount transferred and bank provider.
Bottom Line…
This technology is still in its early buds and it’s an evolving technology and it’s prone to some scams and risks.
However, various rules and regulations are going to be implemented in future. And a serious thought is given to its transaction ability and can be secured.
The future of this technology is bright and promising.
FAQ’s
Ques 1. What dies DeFi means?
Ans. DeFi simply means decentralized finance, which is an evolving financial advanced technology which is more transparent, more secure than centralized finance system. It is based on secure distributed ledger.
Ques 2. What is an example of defi?
Ans. Bitcoin, Euro, Gold are example of DeFi, Let us understand how? It means user can bet on any assets without holding the assest.
Ques 3. Is Defi Secure?
Ans. Defi technology is still evolving, however there are some issues which need to be addressed like phishing, cyber hacking and a lot more.
Ques 4. Is Defi and cryptocurrency the same?
Ans. It has already been explained in the article though they are not same but similar in many ways it is a tool that creates a lending and borrowing platform without banks.
Ques 5. Is Defi coin is a good investment?
Ans. Yes, but make sure to do full research before investing. We are not suggesting and not giving any financial suggestion to invest. On DeFi platform you can borrow, save, land and trade your assets.
Ques 6. Is Defi available on coinbase?
Ans. DeFi coins and tokens are available on coinbase. Users now can access the coins by their coinbase account.
