What is DeFi?
Decentralized Finance (DeFi) is a term used to describe the shift from traditional financial products and services to those built on decentralized protocols on the Ethereum blockchain. DeFi applications, also called protocols, is open-source software that anyone can use without needing to go through an intermediary. DeFi protocols can offer financial products and services that are trustless, permissionless, and borderless. This means that anyone with an Internet connection can access these services without needing to go through a bank or other traditional financial institution.
Overall, DeFi protocols offer a more efficient way of providing financial products and services than the traditional financial system. This is because they are built on blockchain technology, which allows for trustless and permissionless transactions. In addition, DeFi protocols are often cheaper and faster than traditional financial products due to their automated nature. As the DeFi ecosystem continues to grow, it is likely that more people will start using these protocols in place of traditional financial products.
What Does Decentralized Finance Do?
Decentralized finance—often called “DeFi” —refers to the shift from traditional, centralized financial systems to peer-to-peer finance enabled by decentralized technologies built on the blockchain. From lending and borrowing platforms to stablecoins and tokenized BTC, the DeFi ecosystem has launched an expansive network of integrated protocols and financial instruments. By deploying immutable smart contracts, DeFi developers can launch financial protocols and platforms that run exactly as programmed and that are available to anyone with an Internet connection. In this way, DeFi is opening up access to financial services that have typically been controlled by central authorities, such as banks and other financial institutions. By removing intermediaries from the equation, DeFi protocols can offer much lower fees for users while also increasing transparency and security.
The possibilities for DeFi are endless, and the ecosystem is still in its early stages of development. As more users get involved and new protocols are launched, we will likely see even more innovative applications for decentralized finance emerge.
What Is Total Value Locked in DeFi?
The total value locked in DeFi (TVL) is a metric that tracks the total value of all assets locked up in DeFi protocols. As of October 2020, TVL was over $13 billion. This figure is constantly changing as more money flows into and out of DeFi protocols.
TVL is an important metric because it gives us a snapshot of how much money is being used to finance activities in the DeFi space. It also allows us to track the growth of the DeFi ecosystem over time.
The current TVL figure may seem like a lot of money, but it’s important to remember that the crypto markets are still relatively small. In comparison, the TVL of the traditional financial system is trillions of dollars. This means that there is still a lot of room for growth in the DeFi space.
What is Defi Development?
In contrast to centralized finance (CeFi), where financial institutions like banks and governments control the flow of money, defi enables anyone to access decentralized markets and make financial transactions without intermediaries. Cryptocurrencies like bitcoin and ether (the native token of Ethereum) are used as collateral or exchanged on decentralized exchanges (DEXes), providing liquidity for a wide range of defi applications.
From DAOs to synthetic assets, decentralized finance protocols have unlocked a world of new economic activity and opportunity for users across the globe. By deploying immutable smart contracts on Ethereum, defi developers can launch financial applications and platforms that run exactly as programmed and that are available to anyone with an Internet connection.
Advantages and Disadvantages of DeFi
One of the major advantages of DeFi is that it offers a more inclusive financial system that is accessible to anyone with an Internet connection. DeFi protocols can offer financial products and services that are available to anyone with an wallet. This open access is one of the key ways that DeFi is democratizing finance.
In addition, DeFi protocols are often built on open-source code, which allows for greater transparency and auditability than traditional financial systems. Because anyone can review the code underlying a DeFi protocol, users can have greater confidence in the security and stability of these platforms.
One potential disadvantage of DeFi is its relative complexity compared to traditional finance. For example, users who are new to cryptocurrency may find it difficult to understand how some of the more complex protocols work. In addition, because many DeFi protocols are still in development, they may be subject to greater volatility and risk than more established financial products.
I am Sayan Chowdhury, a Web 3.0 and Blockchain Consultant at GrowGlobal.IO. GrowGlobal is breaking dimensions in the field of blockchain and crypto by creating solutions that allow local businesses to reach the world. First prize winners in the KardiaChain global hackathon and working in building the world’s first Unified Crypto Interface protocol. If you wish to explore the opportunities of Blockchain and NFT-enabled services for your business with us, click here (growglobal.io/book-a-coffee).