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The popularization of the internet and technological advances have allowed for great innovation in segments such as industry, retail, finance, research and development, health, among many others. The financial system, in particular, has experienced major changes with the creation of Blockchain and the development of crypto. From this, a new concept emerges that uses these technologies to promote a new format for finance: DeFi.
Read on and understand more about this new emerging ecosystem in the crypto world.
What is DeFi?
Decentralized Finances, also known as DeFi, are a new blockchain-based monetary system – commonly Ethereum.
Basically, they are open-source networks that allow the creation of financial applications in which activities occur in a decentralized manner (receiving the nomenclature from Dapps) and work from smart contracts.
With them, it is possible to create and issue digital assets with the advantages of operating on public blockchains, such as resistance to censorship and improved and global access to financial services. A major contributor to this system is MakerDAO, developer of stablecoin Dai.
Why was it created and what makes it possible?
One of DeFi’s main motivations is the fact that more than 1 billion people do not have access to financial services. This is because the current financial systems have limitations that prevent everyone from using it, such as high fees and the need for “permissions”, that is, accounts can only be created with the release of financial entities.
The possibility of recreating a financial system using technologies such as blockchain and smart contracts makes it possible to eliminate the disadvantages of traditional systems and add more transparency and security since the decentralization and recording of financial transactions on the blockchain – which is registered in all network nodes – prevent fraudulent actions.
In addition, anyone can create an account at a decentralized financial service, regardless of their geographic location or the financial amount they have, and their account cannot be closed by others, contrary to what is done in the traditional system, where banks or payment processing companies can close their clients’ accounts.
The advantage of technology also manifests itself in transactions, as it allows them to be carried out at lower rates and much faster than traditional financial systems. As well as in making loans, since the DeFi platforms connect creditors and borrowers without the intervention of third parties, eliminating the need for credit checks or bank history and allowing the guarantee of digital assets.
DeFi makes it possible to integrate stocks, government bonds, foreign exchange, among others for an affordable, efficient and very secure financial environment.
Although it may face challenges such as the slow adoption process, the volatility of cryptocurrencies, the possible limitations of public blockchains and possible regulatory obstacles, DeFi is a major advance in the financial sector that aims at inclusion and simplifies traditional financial systems, being an ecosystem that tends to grow more and more in 2020.
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