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What is DeFi: a Promise or Bubble for Cryptocurrency Industry?

Everybody is talking about DeFi as a next big thing! Four letters stand for “decentralized finance” and describe financial applications in cryptocurrency or blockchain geared toward disrupting financial intermediaries. DeFi is distinct because it expands the use of blockchain from simple value transfer to more complex financial use cases.

The blockchain public ledger technology has a huge potential to change a wide variety of industries, in addition to the traditional payments system. These include stocks, bonds and other financial assets for which records are stored digitally and for which currently there is a need for a trusted third party to provide verification of the transaction. Investors speculating in the future possibilities of this new technology have driven most of the current market capitalization, and this is likely to remain the case until a certain measure of price stability and market acceptance is achieved.

Cryptocurrency is changing the world because it has many advantages including:

  • Decentralization. The blockchain technology will manage the database that has the bitcoin transaction records. The decentralization would involve only two parties in the transaction, i.e., the sender and receiver. You no more have to deal with any third party. There is no one to monitor what you are doing.
  • Easy transactions without a middleman. When you use cryptocurrency, it removes the need of the middleman. The transaction would take place one to one on the secure network. The transactions would be transparent, and it becomes easier for you to establish the audit trails. There would be no more confusion on who is going to pay whom. The parties who are involved in the transaction would know each other well.
  • Secure asset transfers. The blockchain system facilitates secure transactions. The cryptocurrencies would be designed to add third-party approvals and can be completed on the future date. If you are the person who holds the cryptocurrency and has authority on the account, you can reduce the time and expenses involved in the transaction of assets.
  • Anonymity and Confidentiality. The best part of using cryptocurrency is that every transaction you carry out with the recipient would be unique. You can get into terms negotiation in every deal. The information is exchanged based on the push concept. You can only share the information that you want to disclose to the recipient. The financial history will have ample privacy, and your identity would be protected.
  • Low transaction fee and strong security. Inside the cryptocurrency network, there would be no charge or very less charge on the transaction fee. The transaction fees charged by cryptocurrency transactions would be lesser compared to the traditional financial system. When you perform the transaction in cryptocurrency, you cannot reverse it. There will be a reliable encryption technique used throughout the cryptocurrency transaction process to protect from hackers and tampering the information.

As you can see, the benefits of cryptocurrencies are obvious. However, despite the fact that electronic coins are already used as an asset on some exchanges, many states deliberately limit their circulation, as they consider it a threat to traditional financial assets.

It is not surprising that cryptocurrency is taking the world by storm. Many companies are accepting the payments through cryptocurrency these days. With the rise in the bitcoin value, many people are showing interest in investing in bitcoins. The cryptocurrency is backed by the blockchain technology that is having a positive impact on wallets.

What is the DeFi and what does it do for cryptocurrency?

In simple terms we can describe DeFi as a decentralized financial system that facilitates exchange transactions and use of financial services through applications /services created on the basis of algorithms of blockchain platforms (mainly Ethereum).

In other words, the owner of the cryptocurrency will be able to interact with other participants in the system without intermediaries and regulatory authorities. DeFi is built on smart contracts an opens up new horizons for millions of Internet users to manage their cryptocurrency and perform a wide range of financial transactions including sale, exchange or lending.

DeFi Toolkit

Many users are attracted by the fact that the DeFi offers a wide range of options to  manage financial assets. DeFi does not have a centralized authority and it makes the system more attractive in comparison with other financial exchanges.

What exactly DeFi offers to users?

  • Lending protocols automate all transactions and contacts.
  • Token platforms facilitate creation of corporate crypto currency.  
  • Analytical software helps predicting fluctuations and market behavior.
  • Security.Users can exchange their currency without fear of blocked accounts or fraud.
  • Exchange.Users can exchange cryptocurrencies without intermediaries and additional fees.
  • DeFi escrow. Traders can perform crypto currency exchanges.

Indeed, DeFi offers a wide range of financial services to users and opens new possibilities to investors.

What are smart contracts?

In simple words, smart contract is a special algorithm program automates transactions and guarantees execution by both parties. Since smart contract is executed in blockchain environment, they are traceable, transparent and irreversible.

Smart contract code contains the data about the transaction, contractual obligations of the parties and penalties for violation of the contract. Moreover, smart contracts are automatic and do not require an intermediary.

Promising DeFi projects

As we mentioned, DeFi is a very young and developing section. It is an umbrella term for a variety of financial applications in cryptocurrency or blockchain geared toward disrupting financial intermediaries.

Let’s mention the most promising DeFi projects:

  • YFI. The most successful DeFi project. Release of the Yearn Finance token was announced in mid-July this year.  The coin was created for a yield aggregator platform and had no par value. The expected profitability of the project was 10.58%. However, in a week YFI skyrocketed by 35,000 %.
  • The Force Protocol. The project offers complementary solutions for cross-platform transactions, chain payments and money transfers. The protocol guarantees high security and transparency of crypto services.
  • NFTfi. A lending platform where user can use their cryptocurrency as a collateral to get an instant loan.
  • Lition. A platform sells green energy for Ethereum mining. Energy producers earn more by selling direct to the final users. The middleman is cut.
  • Matcha. A cryptocurrency exchange that allows buying and selling at the most favorable price. Liquidity providers include 0x Mesh, Kyber Network and Uniswap, etc.

What’s in the future for DeFi?

Experts try to predict the future, but they are not clairvoyant. In terms of DeFi there is an optimistic sentiment that it will grow and develop into the flourishing industry. However, there are some pessimists who believe that the industry will become a victim of its own capitalization that reached 15 billion dollars.

Optimists claim that the DeFi will survive and the rumors about “a bubble” are greatly exaggerated.

Well, we can conclude that the future of the is difficult to predict but we continue to pay attention to its development. Many experts predict that after the US presidential elections there will be a significant turmoil d in the stock market. Consequently, investors will be looking for a safe-haven asset and can diversify into cryptocurrencies even more than now.

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