DeFi is the name given to decentralized financial transactions consisting of the words decentralized and finance, and financial structures that are not dependent on any center or authority.
Systems that are decentralized and lacking decision-making authorities, such as Bitcoin and Ethereum, are ideal examples of DeFi. However, since financial instruments are not limited to sending and receiving money, it would be correct to bring to mind more advanced financial functions when DeFi is mentioned. These include borrowing, lending, decentralized stock market, insurance, shopping, marketplace and the like. For those who enable such more advanced features, Compound (COMP), Kyber Network (KNC), 0x (ZRX), Bancor (BNT), Synthetix Network Token (SNX), Maker (MKR), Uniswap (UNI) and Aave, which have tokens on our exchange (LEND) can be counted.
DeFi structures must have elements that somehow reassure their users. Although a decentralized structure sounds interesting, it can also be used for malicious purposes. Bitcoin DeFi structure is secured with an unbreakable and unchangeable mathematical formula.
All of these systems must have a cause-effect relationship. The transactions that can be made are clear and it is clear under which conditions and which transactions will be made. Therefore, smart contracts, decentralized applications and consensus protocols have an important place in DeFi systems.
For What Purpose Did DeFi Emerge?
It was initiated to build a more democratic financial system after the emergence of cryptocurrencies for the purpose of freedom, another most important aim is to enable people who do not have access to traditional financial systems to do their financial business.
About 1.7 billion people around the world do not have access to the traditional financial system, namely banking transactions. DeFi systems aim to reach these people, whom the current financial system cannot reach.
Although there are physical barriers to accessing banking systems, people’s distrust of the central banks is important.
What is the DeFi Difference?
It ensures that people who cannot trust the bank can perform their banking transactions not by an authority, but through an algorithm created by the system. It enables it to be done through a certain formula with millions of devices connected to DeFi networks. For this reason, it is impossible for a center to intervene in DeFi systems. Users of the system also ensure that the system can work.
In general, the advantages aspects are:
- It led to the emergence of decentralized exchanges.
- It has enabled the use of money-based banking systems by everyone.
- It has enabled users to borrow and lend transactions between users.
- It enabled the introduction of a new cryptocurrency to the market and the ability to raise funds for projects.
- It has enabled newly available finance tools to be made available with DeFi.
What is the Advantage of DeFi Systems?
After the 2008 crisis in the world, many people felt distrust towards banks and state central banks. The dominance of a center in all financial instruments, monetary policies, and a system that even banks could lose at any time were highly criticized.
The fact that governments can print unlimited money and change valuations has increased people’s interest in systems where no one can interfere with a certain formula.
Bitcoin has become the most important asset to emerge in this field. It was a decentralized DeFi structure where thousands of people could be both using and managing it.
What are DeFi Usage Areas?
It claims to offer a better system than traditional financial systems. For this reason, there are areas of use that are advantageous from traditional financial systems. These are in general terms:
- To be able to transfer very cheap, fast and secure money to all over the world.
- With the established borrowing systems, users can both borrow and lend.
- Ability to tokenize an owned asset. Thus, it both gives a value to that asset and ensures that it can be transferred.
What Are the Disadvantages of DeFi?
In many ways, it will radically change the traditional understanding of finance. Being at the very beginning of this change causes there are still open spaces in some areas of this system.
There are currently two aspects that may be missing. Although it aims to be usable all over the world, the number of people using DeFi is very small at the moment.
As a second problem, so many transactions have to be stored as data in some way. There is not an adequate infrastructure for the storage of these data.