DeFi: Difference between revisions
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|title= DeFi (decentralized finance) | |title= DeFi (decentralized finance) — Decimal Wiki | ||
|titlemode= append | |titlemode= append | ||
|keywords= DeFi | |keywords= DeFi,decentralized,finance | ||
|description= DeFi (decentralized finance) | |description= DeFi (decentralized finance) — what is it and how does work | ||
}} | }} | ||
[[File:En-defi1.jpeg|500px|thumb|right]] | |||
'''Decentralized Finance''' (DeFi) is a d[[ecentralization|ecentralized]] publicly available [[ecosystem]] that requires no trust and consists of financial [[dApps|Apps]]/services based on public [[blockchain]]s, mainly [[Ethereum]]. | |||
'''The DeFi ecosystem''' comprises all aspects of financial services and operations including loans and trading in terms of decentralized structures. Any Internet user can interact with the ecosystem and manage [[digital assets|assets]]. | |||
'''The DeFi ecosystem''' comprises all aspects of financial services and operations including loans and trading in terms of decentralized structures. Any Internet user can interact with the ecosystem and manage | |||
'''The main goal of DeFi''' is to create an open free transparent ecosystem of financial services that is accessible to everyone and operates without any interference from authorities. Users will remain full control over their assets and interact with this ecosystem via [[P2P|peer-to-peer]] (P2P) decentralized Apps ([[dApps]]). | |||
== Advantages of DeFi == | |||
* Easy access to financial services. | |||
* Compatibility of Apps based on public blockchains that may lead to the emergence of completely new financial markets, products and services. | |||
* DeFi Apps do not need require intermediaries and courts. The code ensures the resolution of each possible dispute, and users can keep all their funds under control. This reduces the cost of providing and using products and allows you to create a more trouble-free financial system. | |||
* The single point of failure in the system operation is excluded as it lies "on top" of the blockchain network. Data is recorded in the blockchain and distributed among nodes, which practically eliminates the presence of censorship/shutdown. | |||
* The development and deployment of DeFi Apps are becoming less complex and more secure. | |||
== Potential use cases == | |||
= Potential use cases = | |||
=== Loans === | === Loans === | ||
Open loan protocols are one of the most popular types of applications in the DeFi ecosystem. Due to the fact that in this case, credit services are built on public blockchains, they minimize the necessary trust in them and provide a guarantee of the operation of [[cryptography|cryptographic]] verification methods. Blockchain-based credit marketplaces reduce counterparty risk, make loans and credits cheaper, faster and more accessible to more people. | |||
=== Monetary banking services === | === Monetary banking services === | ||
Since DeFi applications are financial by definition, it is obvious for them to have monetary banking services. They may include the issuance of [[stablecoin]]s, mortgages and insurance. | |||
=== Decentralized markets === | === Decentralized markets === | ||
This category of Apps can be difficult to evaluate, since the DeFi segment itself provides a large number of opportunities for various financial innovations. Perhaps some of the most important DeFi applications are [[DEX|decentralized exchanges]], where [[transaction]]s are made directly between user [[wallet]]s using [[smart contract|smart contracts]]. | |||
=== Peer-to-peer prediction Markets === | === Peer-to-peer prediction Markets === | ||
Prediction markets are platforms that allow betting on the results of events, games, elections, and so on. Many jurisdictions prohibit gambling and betting on certain events, including elections, sports, the outcome of court proceedings and other controversial events. | Prediction markets are platforms that allow betting on the results of events, games, elections, and so on. Many jurisdictions prohibit gambling and betting on certain events, including elections, sports, the outcome of court proceedings and other controversial events. | ||
=== Synthetic assets === | === Synthetic assets === | ||
Currently, protocols are being created for the issuance of synthetic assets and derivatives through smart contracts. | Currently, protocols are being created for the issuance of synthetic assets and derivatives through smart contracts. | ||
=== Platforms for the issuance of tokenized securities (Security Token Offering) === | === Platforms for the issuance of tokenized securities (Security Token Offering) === | ||
Platforms for issuing [[tokenization|tokenized]] securities [[decentralization|decentralize]] the process of [[issue|issuing]] or creating securities, which in the traditional finance sector requires the participation of intermediaries: for example, investment banks. | |||
The equivalent of the securities market in the DeFi sector is the market of tokenized securities ([[security token|security tokens]]). [[STO]]s involve the issuance of [[digital assets]] in full compliance with legal requirements, which ensures a higher degree of protection of investors' rights and a reduction in regulatory risks for [[issuer]]s. | |||
=== DeFi-escrow === | === DeFi-escrow === | ||
The user providing escrow services can trade on centralized exchanges without placing funds on them. This enables traders to gain secure access to the liquidity of centralized exchanges. At the same time, users have no reason to worry about the threats of hacker attacks. | The user providing escrow services can trade on centralized exchanges without placing funds on them. This enables traders to gain secure access to the liquidity of centralized exchanges. At the same time, users have no reason to worry about the threats of hacker attacks. | ||
== What problems do DeFi face? == | |||
'''1. Low efficiency''' | |||
= What problems do DeFi face? = | |||
'''1. Low efficiency | |||
Blockchains by their nature work slower than their centralized counterparts, which leads to the creation of additional Apps. Developers of DeFi applications should take into account such limitations and optimize their products accordingly. High risk of user error. DeFi applications transfer responsibility from intermediaries to the user. This can be a negative aspect for many. Developing products that minimize the risk of user error is particularly challenging when products are deployed on top of immutable blockchain networks. | Blockchains by their nature work slower than their centralized counterparts, which leads to the creation of additional Apps. Developers of DeFi applications should take into account such limitations and optimize their products accordingly. High risk of user error. DeFi applications transfer responsibility from intermediaries to the user. This can be a negative aspect for many. Developing products that minimize the risk of user error is particularly challenging when products are deployed on top of immutable blockchain networks. | ||
'''2. Poor user experience | '''2. Poor user experience''' | ||
Currently, the use of DeFi applications requires additional efforts on the part of the user. For these Apps to be a key element of the global financial system, they must provide tangible benefits that will affect the desire of users to abandon the traditional system. The disorder of the ecosystem. Finding the most suitable application can be quite a difficult task; along with this, users must have a certain skill to choose the best option. The risk of hacking smart | Currently, the use of DeFi applications requires additional efforts on the part of the user. For these Apps to be a key element of the global financial system, they must provide tangible benefits that will affect the desire of users to abandon the traditional system. The disorder of the [[ecosystem]]. Finding the most suitable application can be quite a difficult task; along with this, users must have a certain skill to choose the best option. The risk of hacking [[smart contract]]s. Although working with smart contracts in DeFi eliminates the need to trust a person, there is still a need to trust the code of a smart contract that is written by a person. | ||
== Where to track the main indicators of the DeFi sector? == | |||
* https://defipulse.com — the amount of funds blocked in DeFi protocols. | |||
= Where to track the main indicators of the DeFi sector? = | * https://defimarketcap.io — market capitalization of DeFi protocol tokens. | ||
* https://defiprime.com — interest rates in DeFi protocols. | |||
* https://defiscore.io — assessment of the riskiness of DeFi protocols. | |||
* https://dappradar.com — data on decentralized applications. | |||
[[Category:Commoninfo]] | |||
[[Category:Tokenomics]] | |||
Latest revision as of 15:44, 2 February 2024
Decentralized Finance (DeFi) is a decentralized publicly available ecosystem that requires no trust and consists of financial Apps/services based on public blockchains, mainly Ethereum.
The DeFi ecosystem comprises all aspects of financial services and operations including loans and trading in terms of decentralized structures. Any Internet user can interact with the ecosystem and manage assets.
The main goal of DeFi is to create an open free transparent ecosystem of financial services that is accessible to everyone and operates without any interference from authorities. Users will remain full control over their assets and interact with this ecosystem via peer-to-peer (P2P) decentralized Apps (dApps).
Advantages of DeFi
- Easy access to financial services.
- Compatibility of Apps based on public blockchains that may lead to the emergence of completely new financial markets, products and services.
- DeFi Apps do not need require intermediaries and courts. The code ensures the resolution of each possible dispute, and users can keep all their funds under control. This reduces the cost of providing and using products and allows you to create a more trouble-free financial system.
- The single point of failure in the system operation is excluded as it lies "on top" of the blockchain network. Data is recorded in the blockchain and distributed among nodes, which practically eliminates the presence of censorship/shutdown.
- The development and deployment of DeFi Apps are becoming less complex and more secure.
Potential use cases
Loans
Open loan protocols are one of the most popular types of applications in the DeFi ecosystem. Due to the fact that in this case, credit services are built on public blockchains, they minimize the necessary trust in them and provide a guarantee of the operation of cryptographic verification methods. Blockchain-based credit marketplaces reduce counterparty risk, make loans and credits cheaper, faster and more accessible to more people.
Monetary banking services
Since DeFi applications are financial by definition, it is obvious for them to have monetary banking services. They may include the issuance of stablecoins, mortgages and insurance.
Decentralized markets
This category of Apps can be difficult to evaluate, since the DeFi segment itself provides a large number of opportunities for various financial innovations. Perhaps some of the most important DeFi applications are decentralized exchanges, where transactions are made directly between user wallets using smart contracts.
Peer-to-peer prediction Markets
Prediction markets are platforms that allow betting on the results of events, games, elections, and so on. Many jurisdictions prohibit gambling and betting on certain events, including elections, sports, the outcome of court proceedings and other controversial events.
Synthetic assets
Currently, protocols are being created for the issuance of synthetic assets and derivatives through smart contracts.
Platforms for the issuance of tokenized securities (Security Token Offering)
Platforms for issuing tokenized securities decentralize the process of issuing or creating securities, which in the traditional finance sector requires the participation of intermediaries: for example, investment banks.
The equivalent of the securities market in the DeFi sector is the market of tokenized securities (security tokens). STOs involve the issuance of digital assets in full compliance with legal requirements, which ensures a higher degree of protection of investors' rights and a reduction in regulatory risks for issuers.
DeFi-escrow
The user providing escrow services can trade on centralized exchanges without placing funds on them. This enables traders to gain secure access to the liquidity of centralized exchanges. At the same time, users have no reason to worry about the threats of hacker attacks.
What problems do DeFi face?
1. Low efficiency
Blockchains by their nature work slower than their centralized counterparts, which leads to the creation of additional Apps. Developers of DeFi applications should take into account such limitations and optimize their products accordingly. High risk of user error. DeFi applications transfer responsibility from intermediaries to the user. This can be a negative aspect for many. Developing products that minimize the risk of user error is particularly challenging when products are deployed on top of immutable blockchain networks.
2. Poor user experience
Currently, the use of DeFi applications requires additional efforts on the part of the user. For these Apps to be a key element of the global financial system, they must provide tangible benefits that will affect the desire of users to abandon the traditional system. The disorder of the ecosystem. Finding the most suitable application can be quite a difficult task; along with this, users must have a certain skill to choose the best option. The risk of hacking smart contracts. Although working with smart contracts in DeFi eliminates the need to trust a person, there is still a need to trust the code of a smart contract that is written by a person.
Where to track the main indicators of the DeFi sector?
- https://defipulse.com — the amount of funds blocked in DeFi protocols.
- https://defimarketcap.io — market capitalization of DeFi protocol tokens.
- https://defiprime.com — interest rates in DeFi protocols.
- https://defiscore.io — assessment of the riskiness of DeFi protocols.
- https://dappradar.com — data on decentralized applications.