Defi - Creating a shift in the financial landscape

Introduction*

As the world continue to advance we see a lot of new ideas and innovations. The world of cryptocurrency has its own many innovative ideas and projects. The word of cryptocurrency has transformed the financial industry shading more light on how banking should be done.

In this article I will be digging deep in cryptocurrency. I will be explaining one of it features known as Defi.

There have been a lot of challenges and misunderstanding between parties when it comes to banking and transacting with each other. There have been forms of cheats which have led to arguing and having a lot of misunderstanding. Intermediaries like traditional banks have been centralizing finance and not awarding us that sense of ownership.

Defi has transformed the financial industry and has presented a paradigm shift from transitional banking models.
Defi operate on web3 networks which means that it utilizes blockchain technology to create and open inclusive financial system.
Before we proceed further, let us know what Defi is.

What is Defi?

According to Leoglossary

Decentralized Finance (DeFi) is an emerging technology that alters how the financial system operates.
Utilizing distributed ledger technology (DLT), DeFi eliminates the need for intermediaries such as banks, exchanges, or brokerage firms. All financial activity can occur utilizing applications built to facilitate what is needed. This is possible due to the use of smart contracts.

Now let's talk about some of the Benefits or Advantages of Defi.

Benefits/Advantages of Defi

There are a lot of Benefits or Advantages of Defi. We will be discussing some of them.

1. Decentralization: Defi running on blockchain technology is completely decentralized. This decentralized nature of defi allows users to carry out transactions without the need of muddle men or intermediaries. This is very different from our traditional banking system where users are required to provide some documentation to the bank, wait for some times before transactions can be approved.
   This decentralized nature of defi empowers users globally giving them the sense of ownership and control.

Another thing is that the decentralized nature of defi helps it reduce the risk of single point of failure. It enhances the security of the system making it more resilience. This helps protect the system against any malicious attack.

1. Financial Inclusion: Defi is on the front line in promoting financial inclusion. If has done so much by providing easy, affordable and timely access to financial products and services. It has made banking reach people living in the underbank and the unbanked world by making finance accessible to anyone with a smartphone. Defi has eliminated tradition barriers making people anywhere in the world to be able to bank freely.

Defy has made possible a global financial ecosystem that operates without the need or help of traditional Banks.

1. Smart Contracts: Smart contract is a self-executing agreement between two parties. Smart contract has it s terms written directly into code and this helps automatic and program financial transactions. Smart Contracts eliminate the need for intermediaries like banks. Due to the elimination of intermediaries transaction cost has been reduced. Defi user transact on a peer-to-peer ground making transaction more fast in reaching it destination. This has also helped in built trust.
   
   These are some of the benefits of Defi. Defi also have some dark side. Let's talk about some of the challenges facing Defi.

2. User Education: Educating people about defi is really important. It is true that defi is not all that hard to use but it's requires a measure of technical understanding. It is very important to educate people on how to use defi as failure to do so may become a barrier to the widespread adoption of defi.

3. Regulatory Uncertainty: Defi operates on the decentralized web3 networks which makes it prune to regulatory bodies. Government and regulatory bodies are very much concerned about this and are grappling with how to classify and regulate defi.

It is true that government and regulatory bodies are acting as if they are fighting for good by trying to find a way to regulate this innovative financial system but in reality they are after their pockets. Regularly uncertainty may be a problem in different what can be managed.

1. Smart Contracts Error: Smart contract has overtime prove to be the solution to tackle the issue caused by intermediaries but at the same time there may be risk that may come up. Smart contract my introduce the risk of vulnerabilities. There may be coding errors in smart contract and such errors may lead to security breaches, hacks and financial losses.

These are some of the risk that may come with smart contracts. It is best to know that smart contracts is serving a unique purpose in the world of web3.

Now let us discuss briefly about some of the potential of Defi.

Defi Potential

Defy has the potential to eliminate intermediaries such as traditional Banks. Defi gives people the sense of ownership and control by allowing users to transact on a peer-to-peer ground.

Unlike our traditional banks defi has the potential to empower users by allowing them have greater control over their assets and transactions. for example, in defi users have their own private keys which is unknown to any other person. So no body can tamper with their account. So individuals using defi exercise greater autonomy over their account.

Conclusively, Defi has created a shift in the financial landscape. It has made banking accessible to anyone in the world, it has also decentralized finance giving greater access to the people and eliminating the news for Intermediaries.

Credit

Thumbnail gotten from Pixabay

Second picture gotten from Pixabay

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