ᐅ decentralized finance (DeFi) ⚡ what is it and how it works?

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Decentralized Finance (DeFi) – What Is It?

Decentralized Finance (DeFi) – What Is It?

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Blockchain technologies provide access to an entire ecosystem of financial applications. Projects become available to any user and allow them to interact most actively with decentralized finance.

What Does DeFi Mean?

In simple terms, DeFi is an analog of the banking system built on blockchain principles. Loans, deposits, and additional income are all available in DeFi applications. The user receives the most transparent and decentralized financial services, which are provided without intermediaries and commission fees.

What Do DeFi Developments Allow?

Network users can utilize:

decentralized exchanges;
platforms providing access to cryptocurrency loans;
applications for placing cryptocurrency deposits with the possibility of earning interest;
applications for risk insurance.

What Advantages Do Decentralized Finance Offer?

DeFi is a direct competitor to the traditional banking system. Network users can forgo expensive bank loans and obtain loans in cryptocurrency. Several additional advantages can be noted:

blockchain applications are available 24/7;
financial transactions are completed within minutes;
low interest rates and minimal fees for using borrowed funds;
high returns from storing tokens (staking);

These tools are more effective than the traditional banking system. The cost of service is much lower - the alternative financial system does not require banks and employees. These circumstances reduce the credit burden on the end user, offering them finance on the most favorable terms.

Disadvantages of DeFi

The system has only been operating for a few years, so errors in smart contracts and network loads are the most common causes of incorrect transactions. Further development will make DeFi a completely secure sector, but the development stage is always accompanied by some losses for users.