New technologies: what to know about decentralized finance?

New technologies: what to know about decentralized finance?

In the era of technological revolutions, DeFi or decentralized finance is emerging as an increasingly popular concept. Indeed, this solution brings a major change in the world of finance to the point where it seems to represent the only futuristic option in the sector. What is it concretely? What are the various implications of decentralized finance? Here are some answers to these questions.

What is meant by DeFi?

By definition, decentralized finance (DeFi) is a set of peer-to-peer (P2P) financial services backed by Blockchain technology. It is a vast network of protocols for obtaining financial benefits outside the traditional financial system. More simply, it creates many possibilities detached from banking offers, in particular:

  • The borrowing of funds,
  • The collection of interest,
  • The purchase of insurance
  • Trading in assets and derivatives, etc.

In this dynamic, the DeFi has quite specific characteristics. To begin with, it proves to be of exceptional speed for the conduct of its operations. This is basically due to the lack of formal procedures or paperwork.

Second, it does not require an intermediary, thus eliminating the associated costs linked to the banking system. Finally, it displays accessibility to everyone in terms of anonymity and security.

What are the concrete benefits of DeFI?

In terms of advantages, decentralized finance has several compared to the traditional banking system. We distinguish in particular:

  • The reduction of financial inequalities (financial services reserved for a minority are now accessible to the general public);
  • A full range of services (exchange of goods, project financing, borrowing… everything is done in the same crypto space);
  • Transparency and flexibility (all transactions are transparent to a wider audience and users have free access to their funds).
  • Anonymity, speed of service, security.

Of course, this list of advantages is not exhaustive. In this sense, it will be necessary, among other things, to distinguish the non-existence of an obligation to open an account to benefit from DeFi services. Here, we will rather talk about creating online portfolios. In a few clicks, the trick is played without waiting for the authorization of a particular institution.

What about DeFi limits?

Like any human solution, decentralized finance has shortcomings. These are mostly related to the fluctuations observed on the Blockchain or the volatility of cryptos. Thus, there may be an unexpected increase in transaction costs, financial losses following market variations, etc.

In addition, the system does not cover human errors that users may make during their operations. They therefore bear full responsibility for their faults. Finally, it should be noted that decentralized finance does not yet have an infrastructure capable of satisfying too great a demand. It cannot cover all users of traditional finance. There are therefore still many optimizations to be implemented to perfect this solution with its growing notoriety. Note, however, that these few limits remain insignificant to the many advantages offered by the solution.

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