Besides decentralized security cryptos like ICO Bitcoin and Ethereum, blockchain innovations also fuel DeFi i.e. Decentralised Finance, a phrase used to refer financial offerings with no principal authority. This means financial services are offered via smart contracts, which are automated and binding yet don’t require any agents like a bank or exchanges using blockchain tech instead. Stablecoins are used in DeFi to offer insurance companies or lending services without any central authority. Just as Bitcoin brought in the new blockchain tech and decentralized money, DeFi aims to decentralize the whole financial framework.

DeFi’sinfrais used to design decentralized apps or Dapps. Ethereum if the foundation of DeFi. It aids users to design automated contracts for handling financial operations in the DeFi space. Essentially, users can determine the guidelines of how financial transactions will function. Once the rules are in place they cannot be altered in any way.

CEO of WazirX,Nischal Shetty, a Mumbai-based digital currency trade stated that DeFi is furthering the scope of crypto. In a crypto trading platform, before performing any transaction you have to register and complete KYC (know your customer) norms and hold a certain amount in the exchange account. In a DeFi system, all this is out of the question as you will be trading globally without any documentation. 

Although Cryptocurrencies hold the unique feature of anonymity, DeFi only pushes this vital feature increasing crypto risk. DeFi is still in its early stages and not user-friendly plus your crypto isn’t overseen by any platform hence protection is at your own risk. Possibly you might lose crypto in case you go wrong places. The absence of a trading platform and documentation only exploit the anonymity equation towards anti-social activities like terror financing.

In general, DeFi is good for borrowing and lending. Users can earn interest in crypto assets. The interest rates provided by banks are hardly in the brackets of 2.5% to 3%. But in DeFi, few protocols offer as much as 1000% interest rate annually. DEX (Decentralised Exchange) Platforms allow lending and borrowing in the DeFi space. Built on the Ethereum platform, DEX doesn’t need any sign-ups or documentation but instead, it works on enforceable smart contracts with no withdrawal fees.

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Crypto Business World

CBW - External Analyst

INDIA