Beginner's Guide to Distributed Finance (Defi)
Decentralized finance is usually called Defi, which refers to a financial ecosystem that is not constrained by central financial intermediaries such as banks, exchanges, and brokerage companies, but instead uses a blockchain dedicated to decentralized applications (dapps) technology.
The main goal of Defi is to create an open source, permissionless and transparent financial system that allows anyone to participate, regardless of their financial strength and geographic location. Participants in the decentralized financial ecosystem maintain complete control of assets and interact with the Defi ecosystem through the Defi application platform, which is currently mainly based on the Ethereum blockchain.
Advantages of decentralized finance
Traditional financial systems are centralized and rely heavily on intermediaries such as banks and arbitrators such as courts, which makes transactions expensive and time-consuming, especially due to the large amount of paperwork required.
In contrast, the Defi system does not rely on intermediaries or arbitrators. As the name suggests, they are distributed, giving asset owners the right to manage their assets as they interact with the ecosystem. In addition, the code in the blockchain smart contract specifies how to handle all possible disputes, thereby eliminating the need for third-party arbitrators.
By avoiding intermediary services, Defi greatly reduces costs because it eliminates the costs associated with providing and using these intermediary services. Compared with traditional financial systems, transactions are also smoother.
By using blockchain, the financial services provided by the Defi platform will not be affected by a single point of failure, because the dynamic recording of immutable data on the blockchain network makes the potential shutdown and review of such services a complex task.
As long as everyone can access the Internet, decentralized financial platforms can also be used. Like traditional financial systems, participants are not restricted by their financial capabilities.
Distributed financial use cases
Defi made headlines in three main areas, including borrowing and lending, currency banking services, and decentralized markets. Distributed market is one of the fastest growing sectors of the three markets, followed by lending.
A variety of decentralized exchanges (DEX) have been developed, which are Defi applications that allow users to trade cryptocurrencies (often called digital assets) without the need for intermediaries to hold their funds (or digital assets) ). Since DEX requires very little maintenance and does not include intermediary service fees, their transaction fees are relatively low compared to centralized exchanges.
The top decentralized exchanges include:
KingSwap
Bancor
Binance DEX
Uniswap
Curve.
KingSwap derived from the Uniswap protocol is considered the best because it has additional features such as liquidity pool migration and fiat currency trading enhancements. The function provides better user experience and convenience when exchanging between encrypted currency and legal currency. The agreement also has new functions for the blockchain community, such as mining pool rewards and network functions, providing user-friendly real-time benefits in the form of contributor rewards and price curves.