What are DeFi and its applications?
DeFi is Decentralized Finance, and It is an open-source financial ecosystem that allows the user to authorize their digital transactions. DeFi is a Blockchain-powered application that is exclusively run on the blockchain network.
Significant Features of DeFi
- Highly Efficient
- Permissionless
- Limitless
- Eliminate Geographical Barriers
- Complete Control Over Digital Assets
DeFi allows users to authorize their financial transactions and digital assets. It is an Ecosystem built on a Decentralized method and blockchain-powered application that mainly works with the smart contract for lending and borrowing the assets on the liquidity pools. Interest and rewards are given as return for users who pool their digital assets in the liquidity pools. Where it provides the salary to the farmer who doesn’t even have a bank account but they can get their salary through their mobile phones. the unbanked part of the population is the successors of Decentralized Finance development. Decentralized Finance (DeFi) is being developed on platforms like Ethereum, EOS, TRON, and IOST.
The Types Services on DeFi Protocols
Borrowing and lending — The DeFi lending/ borrowing allows the users to get instant loans on the DeFi platform. As it works with the help of Smart-contract, the User can avail of loan facility quickly within a few minutes by providing collateral assets and provides the interest as a return.
The Liquidity providers liquidate their assets in the pool and get a return. Dharma is one of the famous DeFi lending protocols that have more than 2000 different assets are ready.
Stablecoins — Stablecoins emerged out of the need to counter the extreme market buoyancy in cryptocurrencies. It will usually be secured to an advance fiat currency. MakerDAO offers a stablecoin named DAI which is a decentralized currency with a stable price directed by smart contracts and can be used in games, wallets, and DeFi platforms.
Decentralized exchanges — Cryptocurrencies can be quickly exchanged between a buyer and a seller in peer to peer manner eliminating central authorities. IDEX is a successful decentralized exchange that has a highly efficient matching engine and allows exceptional order types. The funds can be managed by a private key and are secured by an open-source smart contract.
Derivatives, exotic assets, and prediction markets -
The DeFi allows various types of derivatives like index trackers, puts and call, and futures. It can be utilized to support trading and risk management. Synthetix is a popular derivatives liquidity protocol and users can gain on-chain susceptibility to a variety of other assets. Rewards will be earned by providing collateral to the Synthetix protocol. It offers derivatives trading, staking, and decentralized asset management.
Insurance — The necessity for insurance has raised these days due to the huge number of risks and contingencies present around us. DeFi insurance projects protect users from various contingencies like price risk, counterparty default risk, technological risk, and network risk. Etherisc is a popular insurance platform that extends different kinds of insurance like flight delay insurance, hurricane protection, crop insurance, social insurance, collateral protection for crypto-backed loans, and crypto wallet insurance. It has mainly three platform layers, a generic insurance framework, a decentralized insurance platform, and a decentralized insurance protocol.
The Future Expectations for Decentralized Finance Solutions (DeFi)
The DeFi plays a huge role in matching on-chain and off-chain entities to the decentralized finance system. DeFi makes a huge change in conventional financial systems are in the form of decision making, risk-taking, and record keeping. Many institutional investors are moving to DeFi to utilized the permissionless, limitless, and trusted blockchain-powered application for the future of Finance. DeFi is known as an Ecosystem as it provides a variety of applications over the blockchain platform that offers a complete ecosystem of Decentralized Finance.
