Decentralized Finance is (DeFi). Which is currently the most talked about decentralized finance. Which is the trend of recent financial system. In recent years it has gained significant traction and is building trust in people's minds. As blockchain technology and cryptocurrency continue to rise, it gradually gains popularity and acceptance. DeFi is one of the financial applications built on a decentralized blockchain network. It refers to a system that is not controlled by any central authority or intermediaries. We all generally know the difference between centralized and decentralized. Decentralized platforms are gaining popularity as compared to centralized ones because there is no middleman and it is not controlled by any individual. DeFi is therefore designed to provide users with financial services such as borrowing, lending, trading and investing without intermediaries.
Some Advantages of DeFi
DeFi has many advantages because it is essentially decentralized. Because decentralized platforms are regulated in such a way that various benefits are provided. Accessible to anyone with an internet connection and a digital wallet, regardless of their location or financial status. There is no specific area or place for that. They are global in scope. It provides access to financial services for people who do not have access to the traditional banking system. It is very scalable across the globe. Most importantly, all these blockchain transactions are transparent and recorded in a public ledger. This provides complete transparency and reduces the risk of fraud. Here all transactions can be easily verified by anyone.
DeFi is built on blockchain technology. So its security and immutability should not be elaborated. Blockchain technology uses cryptography to secure transactions and is not vulnerable to hacks or data breaches. Fees here are very low. It generally charges lower fees than conventional financial institutions due to the absence of intermediaries involved. This can save users money in the long run. Who is transacting here remains confidential and is governed by code. Moreover, since it is not controlled by individuals or organizations, every user gets additional benefits.
Some Disadvantages of DeFi
As with everything there are advantages as well as disadvantages. As DeFi is currently largely unregulated. Many countries have not set proper regulations for this. So it may increase the risk for users. Moreover, there is no oversight or protection for users in case of fraud or loss. DeFi platforms can be complex and difficult to navigate, especially for those unfamiliar with blockchain technology. As we know, crypto still has a lot of volatility in terms of price. So price fluctuation is a big issue here. Since the price fluctuates a lot, it can lead to losses for users who are not familiar with the risks involved. DeFi uses self-executing contracts with contract terms written in code.