Decentralized Finance Explained in An Understandable Way

Definition, application, advantages, and disadvantages: What you need to know about DeFi

Decentralized Finance – DeFi for short – is still a fairly new approach to the crypto market. In this article, we have compiled for you the possibilities offered by DeFi, how you can participate in it, and what to look out for. DeFi stands for Decentralized Finance, which translates as decentralized financial markets. This refers to financial services that are processed via a decentralized crypto platform, such as a blockchain.

With DeFi, there are no central actors like banks or exchanges that control what happens on the platforms. Instead, protocols are used here that regulate all transactions and services taking place via so-called smart contracts. Smart contracts are digital contracts that replace human or manual transactions. They also contain all the solutions for potential disputes.

Decentralized finance – participation made easy

Put simply, as an investor on a decentralized crypto platform, you act as an exchange broker. Access to such a platform is low threshold. You do not have to register with your name and date of birth, nor do you have to fill out a questionnaire or have a minimum investment. As an investor, you only need a few IT skills, an Internet connection, and a wallet. The latter is a virtual wallet where you store your cryptocurrency, the coins, or tokens.

To transfer cryptocurrency to a DeFi platform, a MetaMask wallet is often used. You load the tokens onto the wallet and can then send the virtual money to the protocol or withdraw it.

Practical application of defi

Decentralized platforms can be used in a variety of practical ways. First, borrowing (lending) is possible – without a credit check. In this process, actors lend their tokens to other actors on a platform and receive interest in return. In staking, one holds one’s coins in a wallet and thus makes them available to a network. In return, there are rewards, i.e., interest income. The higher the amount staked, the higher the rewards.

In addition, you can also trade options, futures, or other financial products via the platforms. For example, bitcoin or gold can be represented by derivatives in the DeFi sector. Monetary banking services are also possible in the DeFi sector. Stable coins in particular play an important role here. These tokens replicate a real fiat currency such as US dollars or euros and can then be used as a cash substitute.

Opportunities and risks of defi

You can achieve comparatively high returns via DeFi platforms. In addition, you have full control over your coins, which in turn lowers the costs for administration and the like. Moreover, there are practically no access restrictions on DeFi, so every investor theoretically has access to the platforms. You can trade on the crypto platforms around the clock, every day. There are no opening hours, holidays or other time restrictions that can prevent you from acting.

Since the data is distributed among the nodes of a blockchain, DeFi offers high resilience as well as protection against manipulation. However, there are also some disadvantages that should be considered. For example, DeFi has not been on the market for long, which means that no statements can be made about longer-term developments and risks.

Ownership of your tokens is not only an advantage. You are responsible for your money yourself, there is no professional actor behind you who can support you. In addition, the smart contracts used can be faulty or hacked and manipulated by hackers. There is hardly any regulation of the platforms. What happens if the cryptocurrency disappears due to cyber-attacks, for example, is not always clearly regulated? There are also gaps in consumer protection.

Venice Swap

Venice Swap owes its name to the extraordinary history of the Most Serene Republic of Venice as a naval and mercantile empire, which between Rialto and Piazza San Marco invented the very concept of a modern stock exchange. Just as the Serenissima did in the past, today Venice Swap intends to shape a new concept of crypto exchange where an ecosystem of different applications will create a powerful shared one-stop crypto experience for end users and traders.

A Crypto Ecosystem

Beyond being a one-stop experience crypto trading solution, Venice Swap shapes an entire blockchain-based financial ecosystem. Since its launch, Venice Swap will introduce two main applications in the market: a centralized crypto exchange to trade crypto-crypto and crypto-fiat and decentralized swap app for crypto-crypto trade in the Ethereum blockchain

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