Become A DeFi Expert In 5 Minutes (Or Less)
Updated: Nov 8, 2020
At the beginning of the year, DeFi assumed its position at the epicenter of the crypto community by taking advantage of its core features, expanding into established enterprise firms. In this article I will very simply breakdown the main factors that contribute to DeFi's growth rates and highlight its potential evolution in the digital asset market.
First for some bare-bones facts. DeFi’s decentralized payment networks are going more and more mainstream since they facilitate both online and offline commerce. They do this by utilizing secure, cost effective and instant global payments. These low transaction costs benefit the buyer and the seller, since profits are maximized. Ripple, leading the way in decentralized payment networks, recently expanded its deal with MoneyGram to improve the efficiency of cross-border money transfers.
Let's take a look at the core features of DeFi:
To understand this one, you need to understand DApps (decentralized apps.) dApps are built specifically to enable full transparency and efficiency within a blockchain network. The transparency offered by the technology allows parties in the supply chain real-time access to inventory records and payments can be executed in real-time. The
real-time transparency enhancements could also facilitate a seamless system of lending and repayment using smart contracts. In turn, DeFi transactions protect you, the transacting party, when you make a payment.
Since DeFi is efficient, borderless and more decentralized than any other financial solution, it can protect against monopolization, censorship, mutability, and counter-party
Because DeFi transactions are typically open source, transparent and permissionless, anyone with an internet connection can access the network or view and make transactions. The coding for DeFi projects is open source, under a creative commons copyright license which allows nonprofit usage of open source code.
Because anyone can sign up for a fully encrypted digital wallet, this gives the unbanked population an opportunity to participate in value creation and potential building of wealth and savings that would not otherwise be accessible. Users can easily convert their fiat currency into a stable cryptocurrency (stablecoins), store the stablecoin in an interest-bearing account and use future contracts to hedge against financial uncertainty. By converting fiat into crypto, refugees could recover their savings even if their property is confiscated while fleeing their home country.
3.Neutrality Beyond FinTech
In existing centralized forms of financial technology disintermediation, users are still dealing with a tech company as the intermediary instead of a financial
institution. Accordingly, centralized fintech neutrality is incomplete, making room for further improvements. That's where DeFi steps in because at its core it is more efficient than existing financial intermediation, including FinTech. Thanks to its sophisticated coding and automation, the human element of error is automatically out of the equation.
Even more rewarding, DeFi’s open source nature creates an environment that promotes innovation above and beyond FinTech. We are seeing a lot of this in 2020.
4.Counterparty Risk Management
DeFi reduces counterparty risk because there is no need to trust a third-party intermediary to control your funds or validate transactions. DeFi transactions
are recorded on a public blockchain and are immutable. They are easily viewed and verified.
DAOs are organizations that run through rules encoded in smart
contracts. There are multiple uses for storing digital assets within a smart contract, such as real-estate transactions, secure voting, company management, healthcare services, crowdfunding, mediums of exchange and a lot more.
Smart contracts are executed when any specified set of rules enclosed within them are recognized mathematically by the network. Ethereum blends together smart contract execution together with a high level of flexibility in digital innovation, which makes the platform incredibly attractive to developers.
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