The popularity level of cryptocurrency platform is that it has now comes to the banking environment. With the help of its new and hot project called Decentralised Finance (DeFi).Decentralised finance or DeFi is one of the current hot topic inside the cryptocurrency ecosystem. With its current popularity many people are predicting DeFi could be significantly bigger than the legendary ICO bubble in 2017.
What is a Decentralised Finance(DeFi)
Decentralised Finance or DeFi is a non custodian financial system where people dont need to trust any third party. In other word it is a new virtual financial system that changes the traditional finance by removing the middle man and replacing with smart contract making it fully decentralised in nature. It works along with Smart contract under an Ethereum blockchain. Hence there is no need for a middle man.with this ongoing project Defi could be the next future of banking system.
DeFi as the future of banking
DeFi is all about building complex financial system on top of the ethereum blockchain enabling them to work with the store value, the inveatment and the payment system. One unique and cool thing about Defi is the blockchain support smart contract, which enables users to interact and impower them to participate in things like loans, collateralised dept and fund raising . All this being outside of traditional bank .
One of the most common use case of Defi are borrowing, supplying money to earn interest . Just like as we did in regular bank but here in different atmosphere. Borrowing and supplying in Defi is not the same as getting loan from bank.
To get a loan from Defi users need to collateralised their crypto asset and locked up in a smart contract called collateralised Dept Position(CDP). If users is borrowing money in Defi it will be over collateralised and if the value of collateral fall too much then users can have their crypto liquidated by CDP to cover the loan
Another amazing feature in Defi is it enable uses to acess many financial product and services without the need of KYC and get approve from any platform. It doest require a credit score or discrimination based on the location where you live. In short Defi opens financial positiom for global audience.
Exploring the Defi Ecosystem
A website called DeFiPulse.com is necessary in order to dive into the Defi ecosystem.
Defipulse.com is a websit where people can find the latest analytics and rankings of all the DeFi protocols. Its algorithm tracks the total value locked into the smart contracts of all the popular DeFi applications and protocols. Using this people can see about those 1 billion dollar worth of asset locked up in the Defi ecosystem.Such growh of Defi ecosystem within a very short period of time is the main reason why people are focusing more on Defi project.
Website like loanscan.io can be used to easily compose the different interest rate and choose the right deal for a users. People who are interested in earning interest from their crypto can start theire investment in a popular DeFi platform like compound.finance. Here over 130 million worth of digital assets are earning interest in this platform. Compund is the most popular Defi linveating platform.
When it comes to trading dydx.exchange is the best DeFi platform to do so. It offera a non custodian mergin trade. Currently it is only trade assets like ETH, DAI, Ether USDC and DAI USDC trading pair. But still there ia more to be add on the list in future. Dydx.excahnge enable users to trade Ethereum with metamask wallet. With this user can trade and earn with full control of their key.
Tokenset.com is another interesting Defi platform that offer robo set, which automate crypto profolio management ans select the trading strategy as per users choice. It is a good platform to save users time amd effort.
Another non custodian way to get crypto on fiat is though a project called Nimiq.
This project is offering a fiat smart contract called Nemiq Oasis. It will enable non custodian crypto fiat to trade. This project aims in making fiat currency programable just like ther token on blockchain.
Advantage of Defi over regular bank
Defi is still young and in their early stage hence people are believing in its massive potential. One fasinating things about Defi is its ability to completely decentralise the finanancial service. There about 1.7 billion adult who dont have acess to the regular banking system. With the emergence of more decentralised finance system with new alternatives other than collateralised loan, all the unbank pupulation could have the opportunity to acess to this banking service without the need of any bank account in a few tap from their mobile phone.
But a question arises how can a non banking person trade theire local currency for crypto in order to participate in Defi ecosystem? One of the easiest way is to use a service like localbitcoin and perform a peer to peer exchange without the involvement of any third party.
Another thing is that Defi give the opportunity to those people in developing country to reserve their purchasing power and earn interest using platform like compound.finance by lending out their DAI stable coin ans earning Interest in fiat USD currency. At the same time Defi offers tool to the users to protect themselves against rapidly inflating local currency and making interest from the asset they hold.
Defi also provides several decentralised insurance project. Some of them are nexus mutual, Etherisc, CDx etc. This project could be a key in giving confidence while using DeFi product ans service.
Problem faced in using Defi.
One of the major issue with DeFi is its pretty complecated nature for a common person to understand amd participate in a decentralised Finance system. Another major concern is that smart contract can have bug inside the project which could lead to lost of funds by getting stuck in the platform. Considering its uses it is quite a scary risk for any participeint in Defi ecosystem
Even though Defi is said to be a decentralised non custodial finance it is hard to find a platform without a non custodial solution . Also it will be easier for beginners to get involved in Defi if there is an easy way to get ETH from some of this Defi platform using their bank account. With about 1 billion worth of asset locked up in Defi there is something best to be coming up in near future. One cannot argue about the amazing growth trajactory of Defi. Since Defi is built on an ETH platform a bigger move on Defi could trigger Something big on Ethereum.