What is DeFi and What Are Its Practical Applications?

New York City, Sep 9, 2020 (Issuewire.com) - Decentralized finance or DeFi is a relatively new term, but the concept is not exactly novel. In 2006, the Asian Development Bank presented a paper on decentralization and local finance, discussing the idea in terms of diffusion, delegation, devolution, as well as political and administrative decentralization. Several other industry reports or literature published earlier have explored this subject.

At present, DeFi is viewed as an emerging alternative to the traditional global financial system. Many view it as a solution to the growing wealth gap among populations worldwide. The global financial system many have become accustomed to has resulted in the generation of massive wealth. However, its centralized nature has left out the many who are not connected to financial centers.

Promoting financial inclusion

Decentralization counters the setup wherein governments or regulatory bodies maintain oversight and a great degree of control over how the financial industry operates. It does away with the strict monitoring of financial services, which entails the need for regulatory approval before transactions are allowed to proceed. Decentralization seeks to establish trustless systems.

Centralized systems are good for preventing fraud and criminal activities, but they can be inefficient and restrictive. They can prevent many from accessing banking and other financial services. Also, they deprive people of access to solutions that help create economic activity and support entrepreneurial ventures, business expansion, and investments in the financial markets.

Jubilee Energy and Commodities or JENCO, an advocate of decentralized finance, published an analysis report that highlights the advantages of DeFi. "Utilizing DeFi is more beneficial since users do not have to follow centralized rules. Direct, peer-to-peer exchanges can occur, given that various values are agreed upon irrespective of the current offline values," the report reads.

JENCO is one of the organizations that prove the benefits of adopting a decentralized financial system. It offers financial services aimed at enabling energy and commodity investing for those who do not have access to traditional investing and trading platforms. Additionally, its arbitrage system offers profit opportunities not offered by centralized platforms.

The company shows how to take advantage of the proliferation of smartphones, greater access to the internet, growing popularity of digital banking, and the significance of blockchain technology and digital currencies in modern society. Through the DeFi paradigm, JENCO and other supporters of decentralized finance offer more people access to financial services and ways to generate profits from the financial markets.

The digital currency connection and practical applications

DeFi is largely associated with cryptocurrencies. Almost all of the decentralized financial systems that are shaping up worldwide are built on public blockchain-based currencies such as Bitcoin and Ethereum. As described by Visual Capitalist, "Bitcoin and Ethereum are not just digital currencies -- they're the foundational open source networks needed to decentralize economic activity."

The applications of decentralized finance are illustrated by the various DeFi projects that have emerged over the years. These include alternative savings, decentralized exchanges, derivatives, lending and borrowing, infrastructure and development tooling, margin trading, marketplaces, staking, stablecoins, and the tokenization of assets.

DeFiprime, an analytical services provider serving the DeFi community, provides an excellent description for the applications of decentralized finance. DeFiprime presents a curated list of DeFi projects and implies that these projects leverage decentralized networks. In the process, they transform old financial products into trustless and transparent protocols that run without intermediaries.

The site Fulcrum, for example, offers tokenized margin trading and lending, which allows users to loan assets with interest without going through the rigorous scrutiny of government regulators. It is the same with Aave, an open source platform for earning interest on deposits and loaned money. Meanwhile, the site Neufund operates as a platform for blockchain-based fundraising and asset tokenization.

DeFiprime lists several other sites or projects that demonstrate practical applications of decentralized finance. Learn more about them and how they brilliantly put decentralized finance to good use.

DeFi is not just some passing trend for businesses to ride on. Decentralization is becoming inevitable as the world moves to adopt digital currency into the mainstream and increase the volumes of cross-country payments. Decentralized finance offers a system that leads to lower transaction costs, greater efficiency, and more suitable arrangements for specific situations.  

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Source :DeFiprime

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