DeFi – decentralized finance – is a financial system that uses blockchain technologies to provide financial services without the need for centralized intermediaries such as banks or exchanges (e.g. Binance). Instead, transactions are executed through smart contracts, which are standalone programs that automatically execute the terms of an agreement.
DeFi – Practical examples
Here is what Decentralized Finance can offer you:
- Borrowing without intermediaries: users can borrow directly from other users without the need for a financial intermediary. For example, the Compound platform allows one to deposit cryptocurrencies in exchange for a loan in another cryptocurrency, such as the stablecoin $DAI.
- Instant Payments: send and receive payments instantly without intermediaries. For example, on the Uniswap platform it is possible to exchange cryptocurrencies with each other instantly (a process known as “swap”), without having to go through a centralized exchange.
- “Pooling” of resources: users can pool their resources to invest in a project together. For example, the Yearn.finance platform allows users to invest in liquidity pools, which are pools of assets that can be used to provide liquidity on various DeFi platforms.
- Staking: involves earning rewards by locking your tokens in a smart contract. For example, the MakerDAO platform allows $DAI to be locked in exchange for a stake in platform governance and staking rewards.
- Yield farming: Maximizing gains by providing liquidity across multiple DeFi platforms and earning rewards in return. For example, the Compound platform allows users to deposit their cryptocurrencies into a liquidity pool and receive specific cryptocurrency rewards in return.
In short, decentralized finance offers users greater control and autonomy over their own financial assets, allowing them to access traditional financial services without the need for centralized intermediaries.
However, to use it safely and be confident in carrying out operations in decentralized finance, you must first know the necessary tools, such as specific digital wallets for cryptocurrencies.
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