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DeFi (Decentralized Finance), one of the important use cases of blockchain technology, has gained popularity in recent years and is now accessible to everyone.
DeFi (Decentralized Finance), one of the key use cases of blockchain technology, has gained popularity in recent years and is now accessible to everyone. Decentralized Finance, which describes the tools, protocols, and platforms that people use to manage their money without relying on traditional financial infrastructures such as banks, remittance platforms, and government-issued currencies, has many advantages. Ledger, the world leader in critical digital asset security, shares the benefits of DeFi applications and common use cases.
DeFi, a new money system that empowers its users by offering an alternative to the outdated traditional financial system and providing access to critical financial services, has become one of the key use cases of blockchain technology. This new monetary system is powered by open and transparent smart contracts that can be used to complete a wide range of tasks and can be accessed through simple user interfaces similar to those in standard applications. DeFi applications, an important part of decentralized blockchains, operate without any central governance entity. Because the underlying smart contracts automatically secure all parties involved in a transaction, users can interact without having to trust each other.
Ledger, the global leader in critical digital asset security, shares the key benefits of DeFi applications.
- Easy accessibility: The most important advantage of DeFi apps is their level of accessibility. Accessible to anyone with a cryptocurrency wallet and an internet connection, no matter where they reside in the world, the apps allow them to interact with the world of Decentralized Finance without any credit checks, KYC, or barriers to entry. Globally, 1.7 billion adults do not have access to a bank account. DeFi makes it easy for them and everyone else to access a wide range of permissionless protocols that offer many of the same features that banks provide.
- Transparent: Offering much more than standard financial services, DeFi provides a completely original use case based on openness and transparency, where participants can control the system at any time. It does this by eliminating trusted third parties and costly intermediaries and minimizing access costs.
- Profitability: DeFi allows individuals to easily earn with their digital assets by depositing assets into liquidity pools that allow investors to trade their assets on decentralized exchange platforms such as Venice Swap. Both lending pools and liquidity pool investments offer much higher returns than those offered by even the most generous banks.
Decentralized Finance, despite being a relatively new industry, has grown considerably in recent years, and both the number and variety of DeFi applications have grown exponentially. In the last two years, the total value of tokens locked in DeFi tools and protocols is known to have grown by more than 4,500%, from $203 million to $9.53 billion. Every major financial service we use today has a DeFi alternative. DeFi technology, some of whose applications are completely unique, is sustained by peer-to-peer (P2P) blockchain technology.
- Open Lending Protocols: DeFi lending protocols such as Compound and Aave allow users to securely lend and borrow digital assets. Borrowers deposit funds as collateral and typically pay a fixed interest rate. Lenders receive varying amounts of return on their assets. The most popular DeFi apps subject their smart contracts to audits and are generally considered safe. It’s hard to say that less established or newer apps are absolutely safe.
- Automated Market Makers (AMMs): AMMs are DeFi applications that automatically create markets by using mathematical formulas to determine the price of a token based on the proportion of assets stored in the platform’s liquidity pools, rather than the supply-and-demand method used on most centralized exchanges. For example, if the ETH/UNI pool contains 10 ETH and 100 UNI, each ETH is worth 10 UNI. This ratio can change as traders swap ETH and UNI assets, changing the amount of each token in the pool.
- Decentralized Insurance: Decentralized insurance protocols like Nexus Mutual allow users to protect themselves against a wide range of risks in the DeFi sector, including hacks, theft, flash crashes, and more. Anyone can also contribute to insurance pools to receive a return for assuming the risk.
- Synthetic Asset Issuance: Synthetic Asset issuance platforms enable users to create a wide range of crypto tokens that mimic the real-life existence of another digital currency, the price or attributes of a financial product. Synthetics allow cryptocurrency users to trade and interact with complex financial products through a single token (e.g. ETFs, options, and basket funds) and participate in markets that would otherwise be difficult to access.