What is Decentralized Finance (DeFi)?
Decentralized Finance (or simply DeFi) refers to an ecosystem of financial applications that are built on top of blockchain networks that can be pieced together. It is an abbreviation of decentralized finance that are digital assets and financial smart contracts, protocols, and decentralized applications (DApps), most of which are built on Ethereum.
It is entirely new transparent financial service ecosystem available to everyone and operates with no central authority.
Thus, users maintain control over their assets and act through peer-to-peer (P2P), decentralized applications (dapps).
DeFi acts toward disrupting financial intermediaries and this is its main advantage. What happens when you want to pay your coffee in the bar? You pay with your credit card, but a financial institution acts as an intermediate, it takes fees and commissions as well as has an ability to stop the transaction or interfere. With use of DeFi there is no single authority to control a process.
Traditional Finance Vs DeFi
- Traditional finance needs banks as intermediaries, and courts to provide arbitration whereas DeFi has completely different ecosystem with no intermediates.
- Traditional finance is more expensive as intermediaries make a profit
Open banking Vs DEFI
Open banking give access through APIs whereas DeFi is new financial system that is independent of the current infrastructure.
Advantages of DEFI
- it provides an easy access to financial services to everyone, especially for those who are isolated from the current financial system.
- it is based on public blockchains that will potentially create entirely new financial markets, products, and services.
- blockchain system eliminates any risk of failure or potential shutdowns
- entirely independent from any authority system of financial services
Use of DeFi
1.Lending
DeFi borrowing and lending have many advantages over the traditional credit system. They are instant transaction settlement, an option to collateralize digital assets, no credit checks, and potential standardization in the future.
They have assurance of cryptographic verification methods, reduce counterparty risk, make borrowing and lending cheaper, faster, and available to more people.
2.Decentralized exchanges (DEXes)
Decentralized exchanges (DEXes) allow users to trade digital assets cutting out a intermediary (the exchange) to hold funds.
Their advantages are lower trading fees than centralized exchanges and use of smart contracts allows to make trade directly between wallets
3.Prediction markets
Markets allow users to bet on the outcome of future events. In this case DeFi can cut out the intermediaries.
DeFi can be applied also in direct purchases crowdfunding, derivatives, stablecoins issuance and more
Never has the importance of technology been greater in financial services. All new trends and innovations are building winning strategies for banking system. Do you agree?
I would be happy to answer any questions or submit your project to my team at Astorts Group for evaluation.
Alessandro Rocco Pietrocola is an entrepreneur and investor based in London and operating mainly in Europe, Asia and Oceania with main focus on UK, Baltic Countries, Russia, China, Hong Kong, Malaysia, Singapore, Middle East and New Zealand as area of interest! At the moment is the CEO of Astorts Group. He is an UK FCA (Financial Conduct Authority) Approved Person and is has great experience as director of regulated companies. He uses to dedicate part of his life to inspire others and help them achieve the most out of their life. Since he was 20, he had successfully founded and managed several companies operating in the field of management consulting, wealth management and fintech. He loves travelling, he is a cigars lover, an amateur golfer and a dapper man.
