What is DeFi?

DeFi stands for "Decentralized Finance". This describes a variety of financial applications in cryptocurrency and various Blockchains. It is a Blockchain-based ecosystem that makes digital financial services possible. DeFi and its application allow multiple entities to hold, control, and work with a copy of transaction history in a nearly barrier-free way.

Such transaction history cannot be controlled by a single, central source. This feature is enormously important because centralized systems and people in these systems can limit the complexity and speed of transactions. At the same time, centralized systems offer users less direct intervention and, as a result, more indirect control over their money. DeFi excels at extending the use of Blockchain from simple value transfer to more complex financial use cases.

Who is able to use DeFi?

In principle, anyone. All that is required to participate in DeFi services is an Internet-enabled device and a wallet. The wallet can be compared to a bank account in the traditional sense. Cryptocurrencies such as Ethereum or Bitcoin are managed on this wallet. In contrast to the traditional financial system, no discrimination of investors is possible in the field of DeFi.

 

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Examples of Application

Stablecoins

Stablecoins are cryptocurrencies with the distinctive feature that their price is linked to another value like another cryptocurrency, fiat money, or exchange-traded commodities (e.g. gold, silver, etc.).

Examples: USDT, MakerDAO, Stasis

Lending | Borrowing

Defi lending platforms aim to offer crypto loans in a trustless manner. Here, no entity is required for intermediation. This allows users to register their crypto coins on the platform for lending, which a borrower can take out a loan directly from.

Crypto Exchanges

Centralized (CEX) and decentralized (DEX) crypto exchanges allow individuals and businesses to buy and sell, execute staking and yield farming of cryptocurrencies as well as automated bot trading.

Examples:
- centralized: Binance, Kraken
- decentralized: uniswap, pancake swap, quickswap

Payments

Peer-2-peer payments between two parties are still in their infancy. Currently, various innovative experiments are being conducted. One of the most interesting approaches is to bundle individual payments into a single transaction instead of performing separate transactions for each exchange.


Benefits of DeFi

01

Cost effective & Decentralized

02

available 24/7

03

Unrestricted Access

04

Reduction of traditional investment risk

05

Complete transparency of the investment on the Blockchain

06

Open-Source der Smart Contracts / DApps

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Vorteile der von Decentralized Finance

Digital securities are particularly attractive for venture capitalists and startups. Professional investors can thus invest continuously in companies and young companies can raise capital exactly when they need it.

Digital securities can be represented on a wide variety of cryptocurrencies, for example by the Ethereum Blockchain in the form of tokens. Investors who have purchased these digital securities acquire the right to an equivalent share of the exit proceeds. In this case, they don't become shareholders of the company.

In its simplest form, decentralized  is a system by which products become available on a public decentralized blockchain network, making them open to anyone to use, rather than going through middlemen like banks or brokerages. Unlike a bank or brokerage account, a government-issued ID, Social Security number, or proof of address are not necessary to use DeFi. More specifically, DeFi refers to a system by which software written on blockchains makes it possible for buyers, sellers, lenders, and borrowers to interact peer to peer or with a strictly software-based middleman rather than a company or institution facilitating a transaction.

DeFi protocols, on the other hand, allow users to become lenders or borrowers in a completely decentralized fashion, such that an individual has complete control over their funds at all times. This is made possible via the use of smart contracts that operate on open blockchain solutions such as Ethereum. In contrast to CeFi, DeFi platforms can be used by anyone, anywhere without them having to hand over their personal data to a central authority.

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