What is DeFi? Decentralized finance
DeFi are financial instruments, which are services and applications created on the blockchain.
The main objective of decentralized finance is to increase the availability of decentralized lending to more people.
DeFi an alternative to the banking sector that contains open source protocols.
MakerDAO a decentralized lending protocol, the main advantage of which is the presence of a special type of smart contracts called “Collateralized debt positions”.
Each user can send a certain amount of coins to a smart contract and issue a token. The generated tokens are a collateralized debt to MakerDAO.
Borrowed funds are used by clients of DeFi services to fill liquidity gaps, as an alternative to bank money.
Another well-known lending and deposit platform is BlockFi.
On the BlockFi platform, customers can borrow digital assets using conventional credit schemes: credit checks or intermediaries.
And the Compound platform allows you to invest cryptocurrency at 6% per annum and take loans.
Advantages and disadvantages of DeFi applications
The main advantage is that any user can get one or another financial service bypassing the bank.
This is relevant for borrowers from countries with high interest rates on bank loans. In addition, decentralized landing protocols open up access to borrowed funds 24/7.
Another advantage of DeFi is the ease of creating applications due to the openness and transparency of the code.
Decentralized finance projects can be developed on any platform that interacts with smart contracts.
The procedure for creating a digital asset and bringing it to the market has become easier and more accessible. Payment processing lasts a maximum of a couple of hours, and interest rates and commissions are much lower.
The disadvantages of decentralized finance include factors such as volatility and high credit risk.
During times of high price volatility, DeFi users will have to pay higher fees in order to meet service commitments.
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