DeFi and its advantages — Scallop Learn
The world of traditional finance is full of opportunities for investors. But, the middleman must always take a cut. The banking industry makes a profit from the services they provide, all of which can also be provided in a decentralized ecosystem that will increase efficiency and transparency.
Many of the services that the banking industry provides are prepared for a decentralized model. Most of which already exist in the peer-to-peer services of the DeFi space.
So, what is DeFi??
DeFi (short for decentralized finance) is a collective term for financial products and services that are accessible to anyone with an internet connection. It is an alternative to a system that is opaque, tightly controlled, and held together by years of infrastructure and processes.
With DeFi, the markets are always open and there are no authorities that can block payment or deny you access to anything. This system built for the internet age makes services that were previously slow and at risk of human error automatic and safer.
DeFi gives you control and visibility over your money.
Other than cutting out the middleman in any transaction, DeFi has many other advantages. Some of which include:
- Borrowing and Lending: Borrowing and Lending are a key part of any financial system. Blockchain technology allows for contracts between two parties that do not require a middleman. DeFi has been instrumental in the development of peer-to-peer lending. It enables a cheaper, faster, and easier verification process in lending and borrowing. It also protects the counterparties involved in a transaction and ensures a faster transaction settlement and better accessibility.
- Permissionless: This is the decentralized element of DeFi. Decentralization provides greater access to individuals as well as providing increased simplicity. The aim of DeFi is to stop transactions from relying on corporations and other institutions for data storage, oversight, and so on. This ensures easy access to financial services by everyone.
- Transparency: In DeFi, the ledger containing information about all the activities that have taken place on a blockchain network is shared by everyone. This makes the network data publicly available for inspection. For customers, the transparency afforded by DeFi applications can be a game-changer. It can help people identify and avoid potential financial scams and harmful business practices.
- Tokenization: The Ethereum boom from a few years back led to the emergence of one of the blockchains' most important trends- Tokenization. Tokens exist as assets on a blockchain network and provide a whole bunch of different uses. These uses range from utility tokens that are native to a specific dApp, security tokens, and more. Tokens also provide exposure to other assets(physical and digital)such as gold, oil, fiat currencies, and cryptocurrencies.
- Immutability: Through the use of consensus algorithms like proof-of-work, blockchain technology achieves true immutability. This guarantees that manipulating records stores on a blockchain network is practically impossible.
In combination with the advantages listed above, this creates a level of security that’s difficult, if even possible to achieve with the traditional means of finance.
Scallop Learn offers a platform where users can get enlightened on new crypto terms, functionalities, networks, asset tracking systems, DeFi, and many more.
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