Defi is exciting for investors. Those who do not shy away from experimental forms of investment and have basic knowledge of cryptocurrencies can bypass the classic financial intermediaries.
With investment options for everything to do with decentralized crypto exchanges, exceptionally high profits can be made for all the associated risks. As always, however, the best-case scenario is that you don’t invest in anything that you don’t understand. The following brief explanation on the subject of decentralized finance provides an initial introduction.
Defi stands for decentralized finance. Technologically, these are based on blockchain structures. An autonomous organization and smart contracts play the decisive role here. Typical characteristics are the creation of a transparent ecosystem for financial services, the open-source orientation and the freedom of permission. A central authority is not required, everyone has access to these financial markets. The interactions take place peer-to-peer and via various decentralized applications.
How can I invest with Decentralized Finance?
Decentralized finance works without institutions that take on an intermediary or arbitrator role. Users control their money themselves and benefit from lower costs in terms of provision and use. All solutions to potential disputes are already set out in the code.
The distribution of the data to the nodes of a blockchain offers typical advantages such as high reliability and protection against manipulation. Attempts at censorship make the blockchain considerably more difficult or impossible. Shutting down the service would also involve a lot of effort. An example of Defi is the decentralized exchange pancake swap, which is based on the Binance chain.
Other advantages include simple deployment and access for people who have not previously been able to participate in traditional financial systems. It is an open ecosystem. In traditional financial systems, the intermediaries have to make a profit, so offering the services is not worthwhile for low-income target groups. This problem does not exist with the decentralized approach.
More than just buying coins: What are the possible uses for Defi? In practice, you can use the technology in different ways. The following applications are conceivable:
Borrowing: Decentralized financial markets offer various advantages for borrowing and lending, such as the immediate processing of transactions or the waiver of a credit check and the reduction of counterparty risk.
Decentralized exchanges: Users trade their digital assets without exchanges or other intermediaries to manage the funds. Trading fees are lower because maintenance is minimal. Decentralized financial markets eliminate the need for trustees to issue financial instruments, for example.
Monetary banking services: These include issuing insurance or mortgages. Stablecoins are an important application in this area. Similar to Bitcoin, these tokens offer the advantage of easy digital transferability and could serve as a cash substitute.