Decentralized finance (DeFi): benefits and use cases

The decentralized finance (DeFi) sector has grown spectacularly in 2021 and everything indicates that the expansion will exponentially continue in 2022.

DeFi has become an alternative to current financial systems. So far, tens of billions of dollars worth of crypto have flowed through these apps.

What is decentralized finance (DeFi)?

Decentralized Finance (or DeFi) is the group of financial applications that are built on top of Blockchain networks.

In other words, DeFi is the movement that aims to create an open source, permissionless, and transparent financial services ecosystem, available to all and operating without any central authority.

This way, users maintain full control over their assets and interact with this ecosystem through peer-to-peer (P2P) decentralized applications (dapps).

5 benefits of DeFi

These are the main advantages of using decentralized finance:

• Accessibility

DeFi transactions are carried out without any geographical restrictions. In other words, although in traditional finance some people cannot open bank accounts or receive loans, with a DeFi platform anyone with an Internet connection can have access.

• Transparency

One of the main qualities of Blockchain technology is transparency. All transactions, data, and code on the blockchain are transparent to everyone. This level of transparency builds trust among users.

• Security

With no central authorities involved, users do not have to worry about the security of their funds as they are in full control of them at all times.

However, it must be kept in mind that as with any new technology, there is always some risk associated with its use, although this is not greater than that of traditional finance.

• Interoperability

In the Blockchain world, interoperability is when two blockchain systems can talk to each other and exchange value. Although there is still much to be done, multiple DeFi platforms can already interact with each other safely.

• Programmable

DeFi platforms eliminate any level of intermediaries and human intervention. The business rules are automated within the smart contracts implemented on the Blockchain platform and these are executed without the need for any manual interference.

5 Use Cases

How can DeFi be applied to the real world? Here are some of the most common use cases:

• Loans

Open loans are one of the most popular applications within the DeFi ecosystem. DeFi platforms connect borrowers with lenders, thereby eliminating the credit check process.

The use of blockchain technology allows for lower counterparty risk, offering cheaper, faster loans without geographical limitations.

• Money banking services

Some of the banking services may include the issuance of stablecoins, mortgages, and insurance.

As the blockchain industry matures, there is an increased focus on creating stablecoins.

As cryptocurrency prices can fluctuate rapidly, decentralized stablecoins could be adopted for everyday use as digital money that is not issued or monitored by a central authority.

• GemeFi or Play-to-Earn

The electronic gaming industry has also been impacted by new decentralized technologies. Have you heard about GameFi? In this new game modality, players are rewarded for their in-game skills with DeFi coins.

• Yield Farming

Liquidity mining (or Yeld Farming) consists of locking up digital resources in exchange for prizes that are normally delivered automatically by a smart contract.

• Activos Sintéticos

Synthetic Assets are assets that mimic the value of other assets. This allows investors to trade digital and traditional assets, while remaining in the crypto ecosystem.

In conclusion, DeFi platforms are a very good option to offer transparent and secure finances. However, if you do not have previous experience, we always recommend that seek advice of an expert in this field before getting into the fast-changing world of DeFi.