Smart contracts for ICO once made a real furore. For a long time, this method of collecting money remained the main advantage of the blockchain. The main one, but not the only one. Now begins a new revolution called decentralized Finance
In the spring of last year, the American magazine Forbes called the DeFi sector "a new dynamic that has revived the cryptocurrency industry". Decentralized Finance has really become a trend in 2019, and so far its popularity continues to gain momentum.
DeFi are financial instruments in the form of services and applications created on the blockchain. The main goal of decentralized Finance is to become an alternative to the banking sector and replace the traditional technologies of the current financial system with open source protocols. That is, to open access to decentralized lending and new investment platforms to a large number of people. And allow them to receive passive income from cryptocurrency assets, as well as save on Commission fees for transfers, loans and deposits.
Most of the existing defis are created on the Ethereum blockchain and the number of new applications in the field of decentralized Finance is steadily growing. So, in early February, the number of Ethereum blocked on smart contracts of DeFi-applications reached $938, according to the portal defipulse.com.
Popular DeFi
Perhaps the most famous project in the field of decentralized Finance is considered MakerDAO-decentralized lending Protocol. More than half of the blocked air is on this platform. The project has a fairly large functionality, but the main advantage is the presence of a special type of smart contracts called "Collateral debt positions".
Using them, each user can send a certain amount of ETH to a smart contract and issue their token, secured by the second most important cryptocurrency. At the same time, the created Dai tokens are, in fact, a secured debt to MakerDAO. The platform acts as a kind of Bank, but absolutely any user can take a loan from this Bank. Borrowed funds are often used by clients of DeFi-services to fill the liquidity deficit, as an alternative to expensive money from banks.
Other well-known credit and Deposit platforms are InstaDApp, BlockFi, and Compound. The latter allows you not only to take out loans, but also to invest cryptocurrency at 6% per annum. And BlockFi customers can borrow digital assets using the usual credit schemes: credit checks or intermediaries.
Decentralized Finance also includes platforms for issuing tokens-shares, such as Polymath and Harbour; exchange protocols-Uniswap or Bancor, which allow you to instantly convert one cryptocurrency to another; forecast services such as Augur; platforms for managing digital assets, such as Melonport and others.
Advantages and disadvantages of DeFi applications
Despite the fact that the sector of decentralized applications is only developing, there are already quite a lot of advantages. The main thing is that any user can get a particular financial service, for example, lending, bypassing the Bank. Decentralized landing protocols minimize risks and provide access to borrowed funds 24/7. New products are especially relevant for borrowers from countries with expensive Bank loans.
The procedure for creating your own digital asset and putting it on the market has become noticeably simpler and accessible to almost everyone. Payment processing does not take several days, but a maximum of a couple of hours, and interest rates and commissions are much lower. Users also have new ways to earn money on cryptocurrency.
A clear advantage for developers is the ease of creating applications due to transparency and open code, in addition, projects in the decentralized Finance sector can be developed on any platform that interacts with smart contracts.
However, it is possible that in times of high volatility, DeFi users will have to pay higher commissions in order to timely fulfill the necessary obligations to the services, which in turn may lead to a sharp increase in commissions in the Ethereum network. So, at the end of November last year, the amount of Ethereum commissions in some blocks exceeded $30. This happened against the background of activation of the "complexity bomb" in the blockchain. At the time, analysts claimed that this situation could be caused by products in the field of decentralized Finance (DeFI). A sharp drop in the cryptocurrency exchange rate from $185 to $145 led to the liquidation of credit positions.
Therefore, despite the rapid development of a relatively new area in the digital industry and the emergence of an increasing number of decentralized Finance services, do not forget about factors such as volatility and high credit risk.
