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Decentralized Finance: Understand What Is DeFi
11/27/2023
DeFi is one of the most popular topics in the Web3 universe, as Decentralized Finance is not only the future of Money, but also the future of Privacy.
Decentralized Finance: Understand What Is DeFi
What Is DeFi?
DeFi is an acronym in English for Decentralized Finance, which refers to the set of financial services and products that work on a blockchain network, a type of shared and immutable database.
These services and products are not controlled by intermediaries, such as banks or other financial institutions, but by algorithms and smart contracts, which are computer programs that perform operations automatically. The goal of DeFi is to create a decentralized, independent, cheap, less bureaucratic, global financial system accessible to everyone.
DeFi emerged shortly after the launch of the Ethereum network in 2015, which was the first platform to allow the development of decentralized applications (DApps) on its blockchain. One of the first DeFi projects was MakerDAO, a decentralized lending platform that uses a stable cryptocurrency called DAI, which is pegged to the US dollar.
Since then, many other DeFi projects have been created, offering services such as cryptocurrency exchange, loans, insurance, fixed income, lotteries, among others. Some of the main representatives of this market are Uniswap, Aave, Compound, Yearn.Finance, Synthetix and Curve.
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DeFi is one of the most popular topics in the Web3 universe, as Decentralized Finance is not only the future of Money, but also the future of Privacy.
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How is the DeFi Market?
DeFi is a market in constant growth and innovation, which attracts more and more investors and users. According to the DeFi Pulse website, the total value locked (TVL) in DeFi projects exceeded US$100 billion in April 2023, an increase of more than 10 times compared to the same period in the previous year.
DeFi also represents an opportunity for people who do not have access to traditional financial services, or who are looking for more efficient and transparent alternatives.
However, Decentralized Finance also involves risks such as smart contract failures, hacker attacks, cryptocurrency volatility, and uncertain regulation. Therefore, it is important to be well informed before entering this market.
What Are the Advantages of DeFi?
- Practicality: there are no intermediaries between transactions, which are decentralized;
- Accessibility: DeFi lending applications tend to be less bureaucratic and charge lower fees than those charged by banks or other institutions;
- Yield: DeFi can offer higher interest rates than other traditional applications;
- Security: operations in DeFi protocols are described and executed by algorithms and smart contracts, which are self-executing computer programs that guarantee the rights of each party;
- Transparency: DeFi transactions are recorded on a blockchain, which is a type of shared and immutable database, which allows the verification and auditing of all operations;
- Inclusion: DeFi can offer access to financial services for people who don't have a bank account or who live in financially constrained regions.
These are some of the advantages of DeFi, but there are also risks and challenges, such as smart contract failures, hacker attacks, cryptocurrency volatility, and uncertain regulation1. Therefore, it is important to be well informed before entering this market.
Lucas Lippe
The idea of freedom is fascinating and Bitcoin gives us that in many ways. Explaining ideas of a decentralized web on the Bitcoin Lovers website.
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