DeFi – What is Crypto Based Decentralized Finance

With the cryptocurrency introduction in the market, several platforms came into existence. No doubt the majority of them are providing their service as a third party.

The concept of using a third-party service in order to complete the transactions is also available in banking industries as well. Therefore, the decentralized finance concept is not limited to the cryptocurrency market only.

However, the term De-Fi or decentralized finance is only applicable to cryptocurrencies. As it requires blockchain and cryptocurrency in order to work properly. The decentralized exchanges allow crypto traders to buy, sale and trade different cryptocurrencies more freely.

What is Decentralized Finance [De-Fi] in Cryptocurrency?

Making a huge impact in the cryptocurrency industry, Decentralized finance is gaining popularity quite fast. No doubt people will transfer to decentralized finance in the upcoming years. But why? why decentralized finance is better than centralized exchanges? There are many reasons behind choosing the decentralized finance instead of centralized finance.

People without much knowledge about both the finances don’t know which one is better for cryptocurrency trading. We will go through some important aspects of decentralized finance in this article. So make sure to stick with us!

What is decentralized finance?

There are many De-fi platforms available in the market. But newcomers prefer to choose the centralized exchanges as they provide detailed guidance. However, Such platforms have to rely on others to complete the transactions.

On the other hand, decentralized finance (De-fi) are finance platforms, that do not require any middleman or a third party in order to complete the transactions requests from the user. It’s the main reason why crypto traders choose decentralized finance over centralized ones.

As the decentralized finance platforms can operate easily without any centralized intermediaries that work on traditional methods. Although choosing a decentralized finance platform can put you at risk if not done properly.

How does decentralized finance work?

The word “decentralized finance” explains the motive itself. Where the term decentralized refers to the overall structure of the platform. Because it’s not dependant on different sources to complete the crypto transactions and trading requests.

Think of it as a scenario when you deposit your money into a bank. So you can get some interest on your money yearly or quarter monthly according to your bank’s rules and regulations.

Later the bank will use the same money to lend to other customers as a loan. The only difference is they provide the loan on a much higher interest amount that is pure profit for them. So why let them make a profit out of your money?

Decentralized finance is the complete opposite of the above example. Because they only need a cryptocurrency and an infrastructure to work properly. So you don’t need to go through any middleman where you might have to share a small amount of your profit.

Smart automated codes and robust blockchain infrastructure allow the users to complete transactions easily on decentralized finance. While keeping the risk factor to a minimum by using stable coins with the De-fi system.

The majority of these actions are possible because of the smart connections on the Ethereum blockchain. Allowing the decentralized finance services to exist and operate with transparency.

Wrapping up

Decentralized finance platforms have a bright future ahead. But looking at the current state of the De-fi platforms in the market, taking necessary precautions is mandatory. Using a new platform for the first time where you will invest your money isn’t a joke.

You can even lose your investments in case you fail to choose the right platform. Because there are many startups who are going to take over this market soon enough. In conclusion, using decentralized finance platforms is a high-risk and high-profit game.

Make sure you gather enough information for the De-fi platform you are going to use, so you won’t regret it later. Do share this information with others and don’t hesitate to mention any questions you have in the comments section below.

Related Posts