Decentralized Finance (DeFi) is an emerging financial services sector that leverages blockchain technology to deliver financial products and services in a decentralized, transparent and secure manner. DeFi seeks to provide users with access to the same range of financial services as traditional finance, but without relying on banks or other central authorities for control or oversight.
The primary advantages of using DeFi are its low cost relative to conventional options; decentralization which creates trustless transactions; permissionlessness meaning anyone can use it; open source code allowing developers around the world to audit and improve protocols; censorship resistance through smart contract technology built on public blockchains like Ethereum; and transparency due both distributed ledgers and automated compliance systems.
One example of how this works is stablecoins – digital tokens pegged 1:1 with fiat currencies such as US dollars – being used instead of bank-issued money transfers. Stablecoin transfers take place directly between two parties over a peer-to-peer network rather than having those funds go through intermediary banks who charge fees for their service. This process reduces costs significantly compared with traditional methods while still providing a high level of security since these assets are stored within decentralized networks where there’s no single point of failure from hackers attempting theft or fraud attempts against customers’ funds..
Another example is lending platforms that allow borrowers and lenders alike easy access into debt markets by cutting out middlemen like brokers & dealers while also reducing risk factors associated with fraudulent loans thanks in part to credit scoring algorithms running atop blockchain networks utilizing data collected across various sources including social media profiles, banking histories etc… These types of applications have already been deployed successfully within certain jurisdictions offering favorable regulatory landscapes however more widespread adoption will likely require further development in order for them become viable alternatives globally moving forward .
With many projects currently under construction aiming at creating new opportunities related not only towards lending activities but also insurance programs & derivatives trading among others we should expect continued growth from this space well into 2021 & beyond .
