What is decentralized finance and how does it work
What is decentralized finance and how does it work

The cryptocurrency has been very successful in all aspects. What may help him with this is that it is completely secure and that the confidentiality and secrecy of the transactions that take place there are kept. These functions also support decentralized finance.

The field of decentralized finance emerged after the advent of cryptocurrency and blockchain technology. This is normal because it applies to both. Due to the lack of centralization, this type of financing is carried out directly between the two parties, without an intermediary or supervision from either party.

Conventional Finance

Individuals turn to financial and banking institutions when they need credit or financing. For example, if you go to the bank to borrow $10,000, the bank will ask you about your assets or guarantee you a refund.

The loan process is said to be easy. Each bank sets its own interest rate: if they provide you with the financing you need, you pay it back after the agreed-upon term with the interest representing the bank's earnings. On the other hand, the money you get is actually the money of other depositors.

The first thing that catches your eye is that the bank itself mediates and monitors all operations. The bank does not own the funds, it acts only as an intermediary in the transaction process.

decentralized finance

It's the same in all other areas of finance. Such as insurance and asset management. Where the broker runs the process. On the other hand, decentralized finance does not require an intermediary. The user can get a loan instantly by placing his cryptocurrency.

On the other hand, this process is done by relying on the so-called stable cryptocurrencies. Replacement of physical assets because they are linked to assets that guarantee their value. Of course, all transactions are processed via the blockchain network to ensure stability and data protection.

On the other hand, decentralized financial technology is eliminating the difference between rich clients and regular clients. Borrowing and lending within the blockchain network through decentralized finance is at the discretion of the individual. Where users borrow and borrow.

Since the technology is based on open source software, it provides the user with a high degree of freedom. For example, each user can transfer his money from one loan to another or from one group of lenders to another group. Of course, when lending, the lender receives interest.

The whole process is performed by the owner of the cryptocurrency. In addition, anyone with a cryptocurrency can borrow from it, and they can also lend to others based on the value of their coins. Ethereum is known as the main decentralized financial currency. called DeFi.

The field of decentralized finance experienced significant growth early on. In May 2021, we learned that $80 billion of digital currency was used on the DeFi network. A year ago it was not more than a billion dollars.

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