Decentralized finance, or DeFi for short, is a rapidly emerging sector that promises to disrupt the traditional financial industry with blockchain-based tools and services that mimic banking, investing, and trading services. Since its staggering growth in 2020, we started to witness many DeFi alternatives to traditional financial services. Open lending platforms, decentralized exchanges, and digital asset staking are among the most common use-cases, but new tools and platforms are emerging regularly.
Benefits of DeFi:
Decentralized finance leverages key principles of the Blockchain essence to increase financial security and transparency, unlock liquidity and growth opportunities, and support an integrated and standardized economic system. With basal benefits like Immutability, Interoperability, Transparency, Permissionless, and Self-Custody, you can manage your own digital asset finances without relying on centralized financial institutions.
DeFi Use cases:
|Stablecoins – Stablecoins are a type of digital asset that have their value pegged to another asset(fiat money, or to exchange-traded commodities) in order to reduce volatility;|
|Open lending platforms – These are decentralized applications (DApps) that allow you to either lend or borrow digital assets out to/from other users to earn interest or pay interest on top;|
|Decentralized exchanges – DEXs are digital asset trading platforms that operate without a centralized authority and use simple mathematics to set the price of tokens in a liquidity pool;|
|Decentralized insurance – These can be used to hedge against rare or potentially devastating events like a market crash, hack, smart contract failure, etc;|
|Synthetic asset issuance – The process of creating a digital asset token that represents the properties of something else, like precious metals, digital assets, or more complex financial instruments, like stocks and derivatives;|
|Yield farming – Also known as liquidity mining, this is the practice of locking up digital assets in return for rewards which are usually automatically delivered by a smart contract. .|