How Decentralized Finance (DeFi) Works: The Non-Tech Investor

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A lot has changed since the entry of Bitcoin (BTC) in the finance space over ten years ago. The underlying technology has experienced a huge transformation which has seen the birth of Decentralized Finance (DeFi). Like other crypto other backed projects Decentralized Finance is not a get-rich-quick venture but a secure passive way to grow your crypto portfolio.

DeFi is not the end of blockchain possibilities but expands on the technologies usability which in recent times has spiked crypto adoption. This new hype has seen the original Bitcoin vision of decentralization take a new face. The evolving technology has seen better transaction speeds among others.

Synchronization between various digital assets has been achieved. Already the freedom of decentralized applications in the crypto sphere is being felt across the globe leading to the hype behind Decentralized Finance (DeFi).

Decentralized Finance (DeFi) Vs Fiat: What has changed?

Everyone is talking of DeFi and their related products but not many know what lies behind the new craze. However, to simply put it, DeFi is the traditional banking wrapped in a technology that is fully decentralized and where crypto and dApps play a key role.

Contrary to traditional fiat banking, DeFi allows you take control of what you invest and where to invest it. Simply put, any DeFi project gives its participants the power to decide how the platforms’ systems are run. This means you can borrow or lend without using the services of bank.

DeFi is a game of numbers (forgetting the risks). The more you invest in the project the higher the chances of reaping big when the project value spikes. You cannot compare your returns with an investor who has staked $10,000 in a project with your $10. The only difference is the risks involved. You can afford to lose 50 percent of $10 compared to 50 percent of $10,000 should market prices plummet by 50 percent overnight.

Decentralized Finance (DeFi) is for all

Decentralized Finance (DeFi) is for all; it simply connects lenders with borrowers in an environment that does not require you to identify yourself. As long as you have sizeable collateral, you qualify to get a loan. Unlike the banks, loan holders and lenders benefit with the platform making its profits.

The beauty of DeFi is that all transactions are digitized and online and you can access your funds 24/7. Participates are drawn from across the globe thus providing the best liquidity pool. Anyone can participate in any DeFi project of their choice and take advantage of the open source code capabilities.

Some examples of DeFi backed projects or tokens include but not limited to ChainLink, Aave, 0x, Maker and Yearn.finance. It is up to you to decide which of these projects fit you Decentralized Finance (DeFi) needs. However, you need to consider the risks involved before you stake.

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