Decentralized finance or DeFi - What is it? And how can it be related to crypto trading?

As depicted by a DeFi exchange development service provider, DeFi or decentralized finance is dedicated to cryptocurrency trading and the entire decentralized financial ecosystem. Virtual currencies are now a universally recognized asset, and are used to transact, make payments and is accessible to the masses regardless of their location as well.

What is the basic concept of Decentralized Finance, and how can it be related with trading?

According to a Crypto development service provider, the crypto industry is booming and is a trillion-dollar industry spreading across the globe. Working on the same concept of decentralized cryptocurrencies, DeFi or decentralized finance is basically a public blockchain which follows the working the principle of blockchain technology using smart contracts. The smart contracts are self-executing agreements which is enforced without the involvement of the intermediaries and can be accessed by anyone connected through the internet.

The current DeFi services is best related with –

•    Borrowing and lending cryptocurrencies and earning interests in compound form.

•    Buying cryptocurrencies like stablecoins, tokens, mining and staking as per the value of the currency.

•    Creating and exchanging the derivatives of the digital assets.

•    Through DeFi lending, users can lend cryptocurrencies as done by centralized banks.

•    Adds transparency to transactions and fees.

The DeFi applications used today are developed to be used in the network and the applications are comprised of peer-to-peer protocols only developed as per the requirements of the decentralized blockchain networks. According to a blockchain development company, the protocols provide easy access in terms of lending, borrowing, and even trading using the latest financial tools available.

How can be DeFi related and beneficial to trading?

DeFi is now widely used and several DeFi applications are now being developed which are very much capable of controlling billions of transactions on a weekly basis. However, the traders are the most benefitted, which is best stated as –

•    DeFi offering a decentralized financial system providing the flexibility of transacting and trading at the same time.

•    DeFi facilitates faster transfers with fewer fees and other applicable charges.

•    DeFi do not require intermediaries, which otherwise would be involved for providing additional benefits at higher interest rates.

•    DeFi gives access to varied forms of financial services.

•    DeFi provides high-yielding trading, which is also known as “yield farming” allowing the investors borrow or credit cryptocurrencies at much higher rates.
It can be said that Crypto development service is taking the centre stage and there are different types of decentralized DeFi apps or dApps based on the Ethereum blockchain and the network is capable of handling round the clock trading worth billions.

What makes DeFi different from traditional financial system?

As per a DeFi exchange development company, there are certain differences between DeFi and the traditional financial like –

•    DeFi operation are not operated by any institution or any individual and the DeFi dApps can run as per the smart contracts. Whereas, a banking system is governed by a governing body and its employees and cannot be operated in an automated manner.

•    The code used in the smart contract is transparent and can be audited by any of the participant of the blockchain network. Whereas, in a traditional financial system the audits are handled by individuals which could raise privacy issues and disclose the real-life identity of the users as well.

•    Dapps are designed to be accessed from any location using the same DeFi services and its global network. Whereas, a traditional financial body such as a bank can only operate in restricted space of operations.

•    DeFi provides a seamless and flexible user experience by using a third-party interface or even lets you build your own. Whereas, with a traditional financial system, this might never be accomplished.

Entirely based on blockchain technology, DeFi can be called an alternative to the traditional financial system, which is built to provide the same utilities the decentralized way. As per a Top crypto exchange development company, DeFi operates independently and does not rely on any form of centralized financial intermediaries or third parties such as banks, insurance companies, and credit unions, making it an independently operable currency in recent times.

In the decentralized ecosystem, DeFi is still at an evolving stage with working protocols and applications serving thousands of users in terms of transacting the digital assets on a daily basis. Furthermore, DeFi has the potential in terms of offering higher returns with higher interest rates, generating higher profits with less input.