Digital innovation has been responsible for the transformation of different business models, traditional financial systems have managed to adapt to the digital world and become more accessible to users who are increasingly attached to new technologies.
In finance, an open and global financial system built for the Internet age is increasingly popular. This is the case of DeFi or “Decentralized Finance”, which has to offer even more services than a traditional financial system without the need to be centralized by a banking institution.
Inspired by blockchain technology, decentralized finance has transformed the traditional form of financing, by rebuilding and reinventing services. DeFi stands out for its extended use of blockchain from transferring values to more complex financial cases.
To understand this, we must know that the traditional financial market is centralized, this means that our economy is regulated by authorities, such as the government and financial organizations like banks. On the other hand DeFi uses decentralized networks and blockchains to transform traditional financial products into transparent protocols that work without intermediaries.
With DeFi, the markets are always open without centralized authorities that can block payments or deny you access to something. Services that were previously slow and at risk of human error are automated and more secure now that they are managed by code that can be inspected and examined.
Once you understand this let's review some ways to work DeFi:
- Decentralized exchanges (DEXs): This type of exchange connects users directly sothey can exchange cryptocurrencies with each other without the need to give their money to an intermediary.
- Lending platforms: These platforms use smart contracts to replace intermediaries, such as banks who manage loans.
- Prediction markets: They bet on the outcome of future events, such as elections. The goal of DeFi prediction markets is to offer the same functionality as traditional institutions but without intermediaries.
DeFi is gradually approaching the traditional financial system and despite some of the obstacles that exist while operating ahead of innovation, the world of decentralized finance is on the path to prosperity.
If you are looking to be part of decentralized finance, you must know at least that the operation of this technology, build yourself with knowledge, know the advantages, risks, and opportunities that this new future offers you.
DeFi, Decentralized Finance 101 by Ricardo Orrantia.
What is DeFi or decentralized finance?
What is DeFi?
Decentralized Finance (DeFi)