Decentralized Finance (DeFi) | 3rd part | last part

in Beauty of Creativity2 months ago

Hello all
After 2 part of Defi explanation,this is the last and third part of this.

I hope you all will get benefit from it. And i wish you all will read it.

So let's start.
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After part 2


Decentralized Finance(Defi)benefits :

3. Simplified applications

DeFi offers plug & play apps to use the services of decentralized finance
eliminating the complexities of the centralized system. If you have a decentralized
application then you can receive a loan from the US, invest it in a business in
Columbia, and then clear your loan and purchase a new house, all through these
interoperable apps.

4. Enhanced Privacy and Security

The traders who use decentralized finance are in charge of their own wealth and
can carry out transactions without any authorization from the central party.

5. Improved transparency

A trader in DeFi can get any important information easily. If a trader is looking to
gather information on lending protocols like Compound, it is easily available and
transparent. The trader can visit Maker’s Platform Data to receive all the necessary
information.

6. Cross-border payments are cheap

DeFi eliminates costly intermediaries to make remittance more affordable to the
people around the world. The remittance fees in DeFi are below 3% while in the
current system it is 7%.

DeFi Risks :

Despite all the benefits that DeFi offers, there are some challenges that lie in the
path. Let us look at them to understand the risks in DeFi:

1. Smart Contracts may get hacked

While you do not trust humans in DeFi-based smart contracts, you need to trust the
smart contract that he has written. There are chances that he may have missed out
on something which may lead to some tragedy. As DeFi is growing day-by-day
hacking attempts are also increasing every day.

2. Data feed centralization

Blockchains use oracle which allows traders to access price feed in a blockchain-
compatible format. Smart contracts receive information from oracle about the
changes in a specific process. If oracle misleads the smart contracts intentionally or
unintentionally, then there are chances of a big blunder. The more centralized the
oracle is, the bigger problems may arise.

3. Capital Inefficient

Although the DeFi loans are permissionless, they’re capital inefficient. The loan
amount which the user receives relative to his collateral isn’t commendable when
compared to a traditional loan.
The Future of DeFi
Despite the bear market, the amount of ETH locked in DeFi products is increased
tremendously since 2018. If the same thing follows, then according to the DeFi
maximalists, this is just the beginning of the DeFi wave.
Today, we have an internet browser that gives us all categories of news and
information across the world.

Similarly, in the future, we can expect that the crypto
wallet will be a portal for all our digital asset activity.
To fill in the gap DeFi should overcome its roadblocks like low liquidity,
unintuitive UX and accessibility, capital inefficiency, hidden risks, and regulation.
Promising solutions are on their way to make the future of DeFi an exciting one.
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Conclusion:

Financial liberty is one such thing that a trader needs badly. DeFi creates solutions
that are accessible, efficient, and transparent. Defi brings various financial services
like borrowing, lending, asset issuance, prediction markets, and more to anyone
anywhere.
There are now a lot of lending and borrowing platforms built on DeFi. Users
should research about the platform and the team behind it before investing. Some
of the platforms give unbelievable interest rates and return, invest smartly. No
doubt DeFi will be the creation of the global financial revolution.

Thanks all. Hope you all will understand.

I will come again with another topic soon.