This post was created to participate in the Defi Campus Writing Contest #1
https://peakd.com/hive-116367/@culgin/defi-campus-writing-contest-1-what-is-defi-and-how-is-it-different-from-traditional-finance
I have seen the term 'DeFi' quite often recently even on recommended articles from coinbase.
https://blog.coinbase.com/a-beginners-guide-to-decentralized-finance-defi-574c68ff43c4
What is Defi to me?
The full name of Defi is known as Decentralized Finance based on what I found out.
It sounds like online banks that try to offer all the services of banks but in cryptocurrencies.
One can choose to save their cryptocurrency to earn annual interest.
I went to explore certain Defi. I found out that we can earn the same type of cryptocurrency as interest that we deposited but with better interest than our local banks usually. (I guess most of them indicate the annual interest is up to a certain percentage so the interest can fluctuate depending on their business return)
We can also get a loan as well as trade cryptocurrency on Defi.
Another way of looking at it, we probably can call them Crypto Banks.
Defi like Blockfi and Crypto.com can be found in our playstore so it is really convenient to use them on our mobile phone or simply go to their website unlike a physical bank that we need to queue for certain transactions.
It is like international bank for anyone in the world without being regulated by any government or authority.
Some differences that I found out.
- It uses smart contract so our transactions on DeFi are in the public eyes. It is easy to have an audit when the need arises. (I personally think our governments may start to tax us if they understand DeFi more in future)
- DeFi dapps allow automation of banking transaction so there is no need to get many employees to handle those stuff. It does save on human cost then.
- In the past, the investors behind a bank must be extremely rich but anyone can now create a DeFi app to offer crypto service so it does have its risk if one does not find out how reliable is the Defi service before using it.
- A DeFi owner can customise how he wants to build his DeFi applications to include things like stablecoins or even exchanges.
- With an internet, anyone can use DeFi applications so it is designed for global users beyond the hindrance of physical barriers.
DeFi is a wonderful opportunity but it also carries a certain degree of risk if the people behind the service are planning to scam us.
Good research on a Defi can help to reduce the risk of being scammed.
I am new to DeFi so I hope I have compiled and understood DeFi correctly in my humble interpretation of it in participation of the First Defi Campus Contest.
Disclaimer: This is my personal reflection and I am not in any position to instruct anyone what they should do. I am not responsible for any action taken as a result of this post. My post can only be a reference for your further research and growth.