The term Defi - Decentralized Finance appeared very early around 2016 but did not receive much attention from the community because at that time Blockchain technology and the Crypto market were just starting to resonate.
By 2020, Defi began to explode, when many Layer 1 Blockchains increased significantly, in 3 years the number of projects reached thousands of projects on many different blockchain platforms. The total amount of money locked on Defi reached a high of 178 billion USD in the 2021 cycle, attracting many large funds in the media to invest.
WHAT IS DEFI?
DeFi (Decentralized Finance) is a decentralized financial platform operating on the Smart Contract of blockchain.
The decentralized nature of blockchain helps users fully control their assets (Non - custodial) in Defi platforms and applications.
Decentralized
No need for delegation or depository
No need to trust intermediaries
No licensing required
Full control of property rights
Finance
Fast transaction
Borrow and lend
Defi activities all have features like CeFi such as Trading, staking, lending, borrowing, liquidity pool....
Distinguishing DeFi and CeFi
CeFi is centralized finance, everything is centralized in one intermediary such as banks, exchanges, asset management units. And users who want to use services, utilities, and benefits must "entrust" that unit to manage for them.
For example: If you want to receive interest on a loan, you have to send money to the bank and the bank will lend it to someone else, then pay you the interest. Thus, the bank acts as an intermediary to ensure principal and interest for you.
In Defi, smart contracts with transparency and decentralization will eliminate intermediaries.
DeFi's decentralization is demonstrated by providing access to financial services for users anywhere, anytime with just an Internet connection.
The nature of Defi
DeFi is the most practical application of blockchain because it takes advantage of the advantages of this technology, including:
Eliminate intermediaries: No need to go through a bank, financial institution or an intermediary like traditional finance, DeFi completely cuts out the 3rd party so users can maintain control of their funds their. Disputes that occur will be resolved in a pre-specified manner.
Smart Contract: A general method of eliminating third parties as it relies on undeniable code logic on the blockchain network to trigger its execution rather than human intervention. DeFi often benefits from smart contracts.
Automation:
Use Smart Contract to simplify the process while still ensuring speed and accuracy with each contract.
Cost savings:
Cut costs on the role of lawyers and contract implementation personnel.
Free:
Once involved, the parties involved are not subject to external authority but only to the terms they agreed to in the Smart Contract. This feature also prevents them from being manipulated by either party, ensuring the safety and security of contractual agreements.
What are the risks in Defi?
The most common risk in DeFi is being hacked. There are many users and Defi exchanges whose accounts have been hacked, causing all the money in their wallets to be lost, causing more damage to users, affecting the reputation of DeFi.
Users take precautions by not listing on strange links, not greedy for donated coins when they see them in their wallets, and looking for ways to sell them.
Trade with a reputable platform verified by the community.
Above is basic information about the DeFi concept. In the next article, I will write about the ecosystem, applications and investment opportunities in DeFi. Hope readers will like it.
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