What is DeFi, and How Can It Interrupt the Finance Market?
Disclaimer: The text below is a press release that was not written by Cryptonews.com.
As the crypto market keeps booming, breaking highs and lows, new protocols keep coming in place. The sole purpose of these innovations is to streamline crypto transactions and incorporate nascent protocols in its blockchain.
Centralized finance (CeFi) drove the crypto market for a while until decentralized finance (DeFi) came into play, reintroducing the blockchain ecosystem’s core proposition, which includes permissionless, transparent, and trustless protocols.
However, the two systems have fought to find space in the crypto market, raising debates in the heart of crypto enthusiasts on which one is best adopted. In this article, you’ll learn more about decentralized finance and how it can interrupt the finance market through its offerings and benefits.
What is DeFi?
Decentralized finance or DeFi are applications, platforms, and solutions that do not require intermediaries in its protocols. Instead, they deploy their protocols on smart contracts and validate transactions on decentralized ledgers called the blockchain rather than a third-party database.
DeFi applications include a wide range of solutions such as decentralized exchanges (DEXes), NFT marketplaces, lending and borrowing platforms, staking platforms, derivative platforms, and many more.
What Are the Benefits of DeFi
DeFi brings a lot of benefits to crypto enthusiasts, but above all, it boils down to one word, “freedom.” The DeFi ecosystem democratizes the crypto market to maintain both anonymity and trust altogether. Here are some benefits of decentralized finance in the crypto space.
1. Decentralized Exchange
Exchanges that run on DeFi protocols are called decentralized exchanges (DEX). Transactions are validated and confirmed on the blockchain. There is usually no need for KYC as you may only need a valid wallet address funded with cryptos like ETH, DOT, or ADA, to get started.
Decentralized exchanges such as Uniswap are cross-chain and create a bridge to allow the interoperability of tokens of different blockchains, such as BEP20, ERC20, TRC20, etc.
However, decentralized exchanges have experienced setbacks in the area of security. In 2021 alone, Decentralized exchanges have suffered significant losses due to vulnerability.
A popular example is the Poly Network and THORChain hack, in which both exchanges suffered significant losses. Although the hacker of Poly Network returned over 90% of the funds, it left a lot in the minds of crypto enthusiasts over the future of decentralized exchanges.
In the bid to strengthen security, and protect investors who trade on DEXes, Polkadex, a fully decentralized peer-to-peer exchange that runs on the Polkadot blockchain, provides a secure and intuitive environment for crypto traders.
Polkadex is a DeFi platform that gives traders total control of their trading experience while incorporating CeFi benefits that remove barriers such as AML policies. Traders can personalize and customize their order books and trade settings.
Polkadex is Web3-backed and fully audited to maintain its integrity and core values in providing security and balance in the crypto DeFi community.
2. DeFi Staking (PoS)
DeFi Staking refers to exclusive staking protocols deployed on blockchains to provide liquidity for validating transactions through PoS consensus.
With the growing concerns in PoW protocols, PoS was introduced and is fast rising to the mark of ousting the traditional saving accounts. But can DeFi staking defeat the banks?
Well, DeFi staking offers more APY to investors (up to 20% or more) than most traditional banks do (at most 5-8%). With this, investors are seeking alternative ways to maximize profits and therefore resort to staking protocols.
However, most CeFi exchanges allow staking but can this beat DeFi staking? A question you’re left to answer as an investor. If you’re looking to have total control of your crypto, and get the best APY possible, then DeFi staking is the best option for you.
The challenge is that not many exclusive staking protocols are available; instead, most exist as offerings and features in the many investment options CeFi or DeFi platforms offer.
DeFi staking platforms that offer solely staking protocols represent an excellent future for DeFi staking. Hence, you are fully aware of where you are and why you’re investing, and it is easier to get acquainted with the platform.
Security also is a thing to consider when you hop onto a DeFi staking platform. Platforms like YeFi.one offers all of that, plus higher APYs than most staking platforms.
As an exclusive staking protocol, YeFi.one maintains a strong stance on improving and incorporating more and more DeFi solutions to their staking protocol.
3. Lending and Borrowing
Lending and borrowing is another benefit offered by DeFi platforms. In this protocol, users lock crypto assets in DeFi platforms for a period to be used by the platform for lending services.
In return, the platform uses a yield aggregator tool to compound their interests in APY. Although both CeFi and DeFi lending work with the same model, they contrast with one another.
The DeFi loan system is permissionless and requires you to join using only your wallet address or username, while the CeFi loan system requires a KYC to enable you to borrow or lend crypto assets.
So Can DeFi Displace Banks?
The answer to this question is more personal than general. For a start, there isn’t sufficient adoption of blockchain technology across the globe compared to the traditional banking system.
DeFi is greeted with skepticism from many, especially those that know almost nothing about it. But among the enthusiasts, the answer is yes. A lot of folks feel more comfortable keeping their money in crypto wallets and exchanges where no government can suddenly freeze it.
However, such freedom comes with the security threats and cyberattacks that platforms like Polkadex are striving to address. When you talk about banking fees, you may lose your mind trying to justify the rationality behind the insane figures.
In this case, DeFi has the upper hand. DeFi offers low fees and staking opportunities with high APY. Banks, on the other hand, offer peanuts to all and sundry. You can go ahead and compare a lot of parameters between both systems, and you probably may find several reasons that give DeFi the edge.
But the big question is, how do you convince everyone that DeFi is the future of finance? Also, how do you educate the bulk of the world’s population that are not crypto-literates?
Until you get the answer to these questions right, we’ll have banks lurking in the dark, waiting for us to enter our credit card details when we want to buy crypto from CeFi platforms like Binance.
DeFi has opened doors for many opportunities, especially for investors and developers who are enthusiastic about moving the crypto market forward while maintaining a decentralized module for capital flow.
Security remains a significant challenge for the DeFi ecosystem. Still, with innovations in various categories such as Minima for nodes and P2P information transfer and validation, Polkadex for decentralized trading, and YeFi.one for exclusive staking protocols, coupled with proper auditing measures, the DeFi ecosystem will strive to the maximum.