Ask Leo : What Is DeFi? Basics of Decentralized Finance

in LeoFinancelast year


The recent and growing rise of decentralized finance (DEFI), has made it possible to create a number of innovative financial instruments with the aim of obtaining dividends with digital assets, designed with the purpose of satisfying the needs of investors, from the most conservative and Few risk prone, even the most daring and daring who seek to maximize performance, even at the cost of suffering a significant loss of their resources.

What are Decentralized Finance (DeFi)?
Decentralized finances, more commonly known by the DeFi abbreviation, is a term used to call a wide variety of applications and projects based on Blockchain technology, which seek to innovate the world of traditional finance.

The DeFi ecosystem consists of decentralized Blockchain applications and protocols using intelligent contracts, which are only automated executable agreements that do not require intermediaries or third parties for execution, and those who can access any person with an Internet connection .

These platforms seek to facilitate access to loans, loans or trade of various financial tools. The vast majority of DEFI applications are currently developed in the Ethereum network, but alternative networks are emerging that offer greater speed, scalability, safety and lower transaction costs.

DeFi, despite its recent appearance, has grown to the point of becoming a complete ecosystem of applications and protocols in operation that contribute value to millions of users throughout the world. Assets worth more than 221 Billion US dollars are currently blocked in various Defi ecosystems, which makes it one of the greatest growing segments within the Blockchain space.

One of the great advantages of DEFI is to facilitate access to financial services, particularly for those people who are isolated from the current financial system. Another advantage is the modular work environment on which it is developed, that is, the interoperable application of type DEFI of public Blockchains have the potential to create completely new and innovative financial markets, products and services.

However, the DEFI also have some disadvantages, among which are their low yield compared to their centralized counterparts, which translates at a lower speed, an aspect that must be taken into account by the developers. Another great disadvantage is that there is a high risk of error by the user, in whom it falls on the responsibility previously had the intermediary on centralized platforms, which can generate bad experiences, by requiring a greater effort from the user.

Finally, coding errors and hackes are common, and a sample of it, it happened in August 2020 when a platform known as Yam Finance (Yam) rapidly increased its deposits to 750 million dollars before breaking a couple of days later From its launch due to a code error, which caused the market value to be reduced practically to zero.

The DeFi work through applications known as DAPPS (decentralized applications) based on Blockchain technology, but unlike centralized Exchanges (CEX), transactions are made directly among users through intelligent contracts, without using a Intermediary or centralized custodian.

To access the DAPPS, an extension is used in the browser or an application such as the Metamamask wallet or any other, which allows users to interact directly with the network through a web page. Many of these applications can connect and work together to create complex financial services.

Posted Using LeoFinance Beta


Error and Disadvantages happen to be every where. When money and transactions are involved, there are always pros and cons. But I still see a lot of potential in DeFI applications. The yeild is low for now but I'm sure with the kind of inflation and policies we are seeing in the centralized world, the low will soon become the new high 😃

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