Once you get introduced to the crypto world you initial steps are to understand what a blockchain is, how do the cryptocurrencies operate, what problems of traditional financial systems are they trying to fix. As a next step you try to understand in more details which are the key projects and concepts that operate around the crypto environment.

DeFi is an important concept linked to crypto and one which many people don’t understand well. This article is aimed at giving you a basic understanding of what DeFI is and what are it’s primary objectives.

It is more commonly available and being implemented than you would imagine. In fact you might be using many DeFi based tokens and apps without even realizing it.

DeFi stands for Decentralized Finance, and it’s primary goal is to decentralize control of financial transactions out of Centralized Financial institutes like banks. Just like cryptocurrencies are aimed to decentralize money, DeFi aims at taking out central control from how these cryptocurrencies are traded and exchanged.

When you use a popular exchange like Coinbabse or Binance to buy, trade or exchange crypto they are basically centralized exchanges and have several limitations, few of which are:

• Fees: They charge a significant fee for each transaction you make. They control it and they can raise or reduce it as they like.
• KYC: You are not really anonymous here as before making any transaction you need to share identification documents. These can be a potential problem as if in the future your government decides to strengthen control on crypto they can easily do it through these exchanges.
• Hacking Risk: As these exchanges have centrally stored all your token and identity they are prone to getting hacked and many small and big exchanges have already been hacked with many people losing their coins and sometimes getting their identity exposed as well.

DeFi is still in early stages and many projects are being launched every day around this. Most of the current DeFi projects revolve around Ethereum but it is being used in other platforms as well. Some of the popular DeFi based projects which you already might be using are:

• Storing ETH backed Coins: MEW (MyEtherWallet) and Metamask are DeFi based applications to store coins which are built on ETH backbone
• Exchanges: Kyber is a ETH based exchange aimed to provide a decentralized platform to exchange ETH based coins and it has plans to extend to other platforms in future as well. HYDRO and Loopring are other exchanges which are getting popular
• KYC: There are apps built to decentralize the KYC operation reducing the risk of identity breach or theft. One popular app is Bloom, which you already must be familiar with if you use Bounty0x
• Stablecoins: Popular stablecoins like DAI and USD Coin are DeFi based coins

2020 will prove to be a critical year for DeFi as the current economic, political and social problems will weaken the existing financial systems in place in many countries. This will be a trial by fire for DeFI projects if they are up to the mark or not.

This will also open opportunities for DeFi projects to expand as more and more people will start using DeFi as they lose faith in banks and central financial institutes.

In my future articles I will cover more details about these DeFi projects, the one I am expecting to gain a lot of momentum this year is Kyber.

Cheers,

SamBTC

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Originally posted on Uptrennd by me at - https://www.uptrennd.com/post-detail/defi-101-what-exactly-is-it~MjY1NDU3