Another name for Decentralized Finance is DeFi.
This is a financial applications that are built on block chain technologies using Smart contracts. This smart contracts are automated enforceable agreements that usually don't need third parties or intermediaries to execute a task. The Smart contracts can also be accessed by anyone that has internet connection.
DeFi has both peer to peer protocols and applications developed on centralized blockchain networks that require no access rights for easy trading,lending or borrowing.
Ethereum networks is what most DeFi applications are built.
Smart contracts mostly offer turring complete programming languages that allow multiple parties to interact with one another Without a centralized intermediary.what makes blockchains ideal platforms to choose when building financial applications is its ability to capitalize on smart contracts.
HOW DEFI GOT STARTED.
Humans traded goods and services through what they called trade by barter.As humans evolved and economies also evolved. This led to the invention of currency to make the process easier and simpler when exchanging notes,coins,were first introduced this helped for better level of economies.However ,progress comes at a cost definitely.
Central authorities have issued currencies that underpin economies which finally gave them more power as more people began to trust them. However, trust has been broken from time to time.This made people questioned the centralized system's ability to manage said money. For this reason, the idea of DeFi came to be to curb this problem of relying on the centralized authorities for execution of financial transactions.DeFi emerged with the launch of bitcoin in 2009.Bitcoin is the first P2P digital money built on top of the blockchain network followed by Ethereum Smart contracts in 2015. These made DeFi possible.The emergence of DeFi helps for transparent, robust financial system that no one controls.
CHALLENGES OF CENTRALIZED FINANCE.
Financial markets' power is centralized in that when people invest in these markets they relinquish their assets to the intermediaries or third parties such as banks and other financial institutions..This makes the risks and control remain at the centre of these systems.
DeFi is the fastest-growing segment within the public blockchain.DeFi harbours assets worth 30 billion dollars.It has grown into a complete ecosystem which delivers value to millions of users.
LENDING AND BORROWING OF DEFI.
DeFi operates in what is called "Open Finance" that is decentralized lending and borrowing. This offers crypto holders lending opportunities to gain annual yields.It also allows individuals to borrow money at a specific interest rate.Compound finance is an example of DeFi lending and borrowing platform and it was developed on the Ethereum blockchain that permits users to gain interest by lending out assets or to borrow against collateral.The compound protocol enables this by creating liquidity for crypto currencies through interest rates set using computer algorithms.
FUNCTIONS OF DEFI
- Decentralized Exchangess: Though centralized exchanges offer similar options but the investment offered is subject to the exchanges' will and costs and it also leads to extra cost on transactions.Example of DEX is Uniswap.
- Stablecoin: This is a viable solution to volatility issues surrounding crypto currencies and this is making DeFi to gain prominence.
- Prediction markets: DeFi also makes it possible to predict future occurencies in the financial markets,politics,sport betting etc.
- Assets management: This makes investing faster, less expensive and more centralized.
In conclusion, DeFi space is gradually catching
up with the centralized financial system and despite some of the obstacles which are certain,Decentralized Finance is on the part of prosperity. Thank you all.