Decentralized Finance (DeFi) for Beginners

What is the Decentralized Finance (DeFi)?

A structure that does not need any centralized system and/or authority , such as brokerage houses,banks, and etc. , to deliver traditional financial instruments, and instead provides financial services through smart contracts using blockchain technology, is called decentralized finance (DeFi). To be more specific, decentralized finance is an ecosystem that aims to provide an open source , non-permissive and transparent financial services.

In the decentralized finance ecosystem, which is growing in popularity especially in 2020, the total value locked has reached $ 40.6B.

What are the uses of DeFi?

DeFi aims to provide financial services, as mentioned at first. We can say that the general areas of use are based on this. For example, thanks to the DeFi ecosystem, you can easily perform transactions such as borrowing and lending, insurance, funds, and payments without any central system.

They are decentralized exchanges in a system that is gradually incorporated into our lives with decentralized finance. This is actually one of the areas of use of DeFi within the scope of financial services. Unlike central exchanges, there are no intermediaries, all control and responsibility is in the hands of the users.

Pros and Cons of DeFi:

Such a young and dynamic ecosystem, of course, has both advantages and disadvantages. You can see them in the Figure2. I’ve prepared.

Conclusion:

As a result, my view is that decentralized finance is a really well-designed system with its goals, its philosophy, and the advantages it provides. But like every newly formed ecosystem, it contains problems and risks.Decentralized finance seems to have a big place in our lives in the processes that are progressing with its growing value and interest. Over time, we will all experience and see if it can replace the central financial system that people have been used to for tens or even hundreds of years.

Şimal Hazal Sarısözen

Resources:
DeFi Pulse
Bitlo

◾International Trade & Business | Economics ◾Research Specialist