DeFi One Up? How Does DeFi Stack Up Against CeFi?

Ever since the financial crisis of 2008, many practices of central banks, governments, and other entrenched players in the financial sector have been called into question.?

But, the introduction of Bitcoin in 2009 gave the world a glimmer of hope:

“The underlying?Blockchain technology?gave the necessary tools that could one day be used to establish a different kind of financial system – One that will not depend on centralized fiat systems but will operate on decentralized consensus systems.”

Enter Decentralized Finance – DeFi (for short) is a cutting-edge technology/financial solution which:

• Enables customers to seamlessly access a wide range of financial products on a decentralized?blockchain network.?
• Customers don’t need to depend on middlemen such as brokerages or banks to access a host of financial products!

Is this the only reason why DeFi will better Traditional Financial Institutions? Can’t traditional institutions offer such services? Have such questions and want answers to them? Read on to know all about DeFi and its exciting benefits for everyone!

What does today’s?Centralized Finance look like?

If you look at the current aspects of banking, trading, and lending, most of it is managed by centralized systems and is operated by intermediaries/gatekeepers and governing bodies.

To access financial products like mortgages & auto loans or trade stocks & bonds, consumers need to deal with many financial middlemen. If you look at the US, regulatory bodies like the Securities and Exchange Commission (SEC) & the Federal Reserve have laid down the rules that dictate the world of centralized financial institutions and brokerages.

Due to such rigidity, consumers find it challenging to access almost every financial product out there. They simply cannot bypass middlemen like banks, lenders, and exchanges who profit from every?banking/financial transaction.

Decentralized Finance?(DeFi) is the way forward!

“DeFi changes the way people access financial products.”

Instead of going through intermediaries, governing bodies, or gatekeepers, everyday people can now access a host of financial products via peer-to-peer exchanges!

Here’s what the co-founder of TrustToken has to say about DeFi:

“DeFi is an unbundling of traditional finance. It takes the core elements of the work done by financial intermediaries, i.e., borrowing, lending, and trading – and puts it in the hands of regular people.”

Here’s a simple example to make DeFi clear to you:

• Usually, you put your money in a savings account to earn around 1% interest on your money.
• The bank lends the money to other customers at around 4% interest and pockets the 3% profit.?

But, here’s where DeFi changes the game:

Rather than dealing with intermediaries, you lend your savings directly to the consumers, thereby cutting that 3% loss. So, you earn all of that 3% profit!

Now, you might say – I do the same thing that DeFi does with my Venmo, PayPal, or CashApp.”

Well, not exactly. You still have to deal with a bank account linked to the app or a debit card to send the funds. So, these peer-to-peer systems are still reliant on centralized financial intermediaries to work.

DeFi runs on Cutting-Edge?Blockchain Technology

Cryptocurrency &?blockchain?are the underlying technologies that power decentralized finance.

In traditional financial products, your transaction is recorded in a private ledger which is owned & managed by an extensive financial instruction.

But, in blockchain (which is a decentralized, distributed public ledger), your transactions are recorded in computer code!

Since the blockchain is distributed, the?cutting-edge system?provides:

• Anonymity to users
• Verification of payments &
• A record of asset ownership (cannot be altered by fraudulent activities)

What is DeFi made up of ?