DeFi - Decentralized Finance or Open Finance is probably the term that you have seen quite a lot recently. So what is DeFi? Whether this trend will "bloom soon" or will open a "new revolution", ... All will be in the following article of KDG

What is DeFi?

DeFi is an acronym for Decentralized Finance (decentralized / open finance). This is the term used to refer to the financial applications built on Blockchain.

More specifically, DeFi is the "way" to bring traditional financial products to a decentralized "land". There, the need for third parties is eliminated (or minimized), transparency and safety are emphasized, and costs are reduced.

Currently, Ethereum is the platform with the most active DeFi applications. However, this is not the only Blockchain selected by applications; besides there are Blockchain of IOST, EOS, TRON.

The purpose of the birth of DeFi

In traditional finance (CeFi - Centralized Finance ), you are confident the government will not print money all of a sudden so that inflation can soar; Banks will keep your money safe; and you often make a profit by entrusting your assets to a third party, which means giving control of your money to someone else.

But surely you must agree that even if it is your money, but you can not completely control them 100%, regardless of any of the above.

DeFi was born to create an open financial system for everyone. There, people can have complete control of their assets.

To put it more broadly, DeFi is an ambitious effort to decentralize core traditional use cases of finance, such as transactions, loans, investments, asset management, payments and security. by using Blockchain.

So in the future, can DeFi replace CeFi?

 

Can DeFi replace CeFi?

Basically, DeFi will not be able to completely replace CeFi. However, they will provide more types of services that CeFi cannot provide.

In DeFi:

  • Assets will be replaced with cryptocurrencies
  • Organizations, governments, companies will be replaced by Blockchain
  • Wherever you are, you only need a device connected to the Internet to have access to decentralized finance.

As such, DeFi tools are certainly different from CeFi tools, although they provide similar financial services, such as loans.

Not only that, they also provide completely new financial services such as stablecoins (DAI, True USD, ...)

 

Main features of decentralized finance

Easy access

DeFi is an open system, so anyone with a device connected to the Internet can easily access it.

Interactive abillity 

Building a main block to help interoperability between blocks becomes simpler. From there, create an ecosystem that can expand and become diverse over time.

Privacy

In CeFi, the provision of personal data is one of the “steps” that cannot be without; However, DeFi is completely different.

DeFi dapps will have a limited need for third parties (banks or organizations) for users to truly trust, because they are the custodians of their own assets.

Transparency 

Data on market activities will be displayed on an equal basis for all participants.

 

Core benefits of decentralized finance

  • Real decentralization: Helps against censorship; allow all social classes to participate; and have a trusted third party
  • Low costs, quick transactions, and fraud-free contracts: Thanks to the use of Blockchain as an infrastructure
  • Users have complete control of assets without third parties: Do DeFi allows users to own private keys
  • Increased transparency: This reduces the risks of personal gain or misinformation

 

How DeFi works

Operation on DeFi is not controlled by any organization or character, but instead are rules written in code or Smart contract. When they are deployed on the blockchain, DeFi dapps will operate automatically without human intervention.

Besides, this smart contract is completely public on the blockchain so anyone can audit it.

In addition, all trading activities are also public. However, due to privacy concerns, identities on transactions will be credited with a fake name by default.

 

Potential in the future

Although there are still many problems, the DeFi ecosystem has grown 15 times in the past 2 years.

As of February 2.2020, about 3 million ETH has been locked in DeFi applications. In particular, lending products are the fastest growing and fastest growing industry.

This shows that decentralized finance really has potential. And if the weaknesses can be overcome, DeFi will quickly stand by CeFi in the future.

Conclusion

Currently, Defi is a market that is gradually moving towards, KDG is also focusing on this potential market. The above article is the basic information about the decentralized financial market, hope you have a complete view of this market.