Decentralized finance (DeFi) is a revolutionary ecosystem that is gaining more popularity and relevance in finance every day, which has allowed the creation of “new financial paradigms” in terms of the application and usability of the blockchain. The DeFi works as a kind of “little Lego pieces” that can be combined to develop an ecosystem of small solutions, which together create highly competitive financial products and services.
Importance of DeFi
DeFi has experienced exponential growth; although some experts say it is still in the maturation and consolidation phase, governments and financial institutions need to develop a (well-informed and nuanced) understanding of the risks, opportunities, and challenges that Defi can generate in their environment; a simple example of this is the publication of “toolkits” to design decentralized financial policies; for those governments that wish to adopt them, these kits give an explanation and guidance on the risks and political approaches when implementing Defi.
The flexibility of DeFi and intermediaries
History indicates that traditional finance has always been based on the “intermediaries” of the administration due to the role of various advisors, agents, and brokers of trust, security, and liquidity, which gave them a powerful influence. Currently, DeFi, in contrast to intermediaries, offers new alternatives that operate in a decentralized manner under governance and incentive systems, which do not require intermediaries or centralized institutions, especially when using the public blockchain.
The services offered by Defi can be flexibly combined, as they are open-source algorithms, smart contracts, and protocols. So far, there is talk of the potential of its efficiency, innovation, transparency, and financial inclusion.
Some advantages of DeFi over traditional finance
Among the major advantages of Defi over traditional finance, it can be mentioned that there is less friction and costs in terms of transactions carried out and greater transparency, interoperability, and accountability through governance systems based on the algorithms. Likewise, the Defi allows greater control of the participants with the “non-custodial” methods of assets, having a greater possibility of entering the market (due to their availability and no requirement of intermediaries), greater inclusion with available tools innovation.
DeFi and its products
According to the report, some products and services that DeFi offer are known, among the most popular are: decentralized exchanges, stable coins, asset management, credit and insurance platforms, in addition to adding other auxiliary or complementary services such as wallets and oracles.
What do you think about this topic? Do you think decentralized finance is a trend that will last over time?
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