Several years ago from now, you would not find anyone who knew anything about blockchain except for those interested and observing this field, as this technology was hidden behind the digital currencies that were and still are of interest to everyone, but in recent years and with the expansion of the concept of blockchain to include many uses The other, its name has become associated with many new applications and technologies or those being developed today, thanks to its many features that helped implement many unique ideas and projects in several areas.
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The importance of blockchain lies in its ability to work in a decentralized manner, which means the ability to create a specific service, system or application that works through a series of computers distributed in different regions around the world without the need for a single central authority to control this, and among the many applications and services that have become This idea is adopted. Decentralized Finance or DeFi is one of the most prominent and important of these today, and in this article we will get to know it so follow along with us.
What is DeFi?
Dentralized finance, or DeFi, as it is known in short, is a new financial system that works on blockchain technology, and as such it includes digital assets, smart financial contracts , protocols and services that operate exclusively decentralized without any authority or authority controlling them. Decentralized finance aims to provide financial services of all kinds to everyone around the world with greater freedom to deal with their owned assets, away from the restrictions and conditions imposed by traditional financial systems on individuals.
Decentralized financing generally expresses any service or product that provides financial services so that it is based on blockchain , and at the present time Ethereum and its decentralized applications are the most used platform in this field, given the large number of users who cannot access or benefit from traditional financial services in particular In developing countries, the applications of decentralized financing have a great opportunity to spread more widely than now, and the value of assets associated with these applications has reached more than $ 10 billion to date, and for comparison, this value did not exceed 800 million at the beginning of this year.
What are the most important potential uses of decentralized finance?
Lending and borrowing platforms
The term Borrowing and Lending Platforms may seem strange at first glance, as the usual idea about loans is that there is a bank that provides this service and a customer benefits from it, but with decentralized financing applications, the matter is completely different here, as these platforms allow the lender and the borrower Communication between them without the need for any intermediary or third party to organize and secure the process, and therefore anyone can lend or borrow money after agreeing with the other party.
These platforms are the most widespread application of decentralized financing, as they rely mainly on smart contracts to organize lending and borrowing operations thanks to their ability to work and implement without the need for a third party, so that the two parties can define the conditions they want and agree on them within the contract, and with the process being limited between the two parties only, This achieves many additional benefits, such as making loans available to those who do not have a credit record, or achieving greater profits for lenders due to the absence of a third party that can take a percentage of that.
These loans may be in traditional currencies such as dollars or even cryptocurrencies, and it is also possible to use digital currencies as collateral for the loan if the two parties agree to this, and with the fact that the entire process is done via blockchain, this gives it a level of security and reliability greater than alternative methods, so that it is not possible to cheat It is easily manipulated by anyone.
Cash banking services
Banking services are not limited to lending and borrowing only, as it includes other things such as insurance, mortgages and money exchange as well. To achieve this, decentralized financing applications need to use stable digital currencies (Stablecoins), which refer to any digital currency designed so that its value is fixed with small changes unlike other currencies such as Bitcoin and Ethereum, by linking it to other real assets such as traditional currencies or commodities such as gold and oil, for example. .
To achieve this, we must adopt stable, decentralized digital currencies so that they are not affiliated with any company or entity that controls them, and unfortunately, Tether, which is considered the largest stable currency available today, is not considered decentralized enough to be reliable, especially after the many problems and accusations it faces, but over time it may happen. Adopting other more stable and reliable currencies to be used more broadly with decentralized finance applications.
Decentralized trading markets
These markets are also considered one of the most important applications of decentralized finance, the biggest example of which are the decentralized trading platforms (Decentralized Exchanges) or DEXes, which allow users to freely trade digital currencies without the need to use central platforms such as Coinbase that restrict users and impose high fees on trades and do not allow the exchange of all. Coins.
Why are applications of decentralized finance still so unpopular today?
Despite the many advantages offered by decentralized finance applications and services, they are still very little widespread in reality, and if we exclude the significant growth that they were able to achieve this year, their spread has been significantly slow in previous years, and it is not known whether their current growth Will it continue or not, due to several reasons, including:
Poor performance of blockchain platforms: In general, blockchain is slower than other traditional services and systems, and with decentralized financing applications completely dependent on it, users may wait a longer period to complete their transactions.
The presence of some potential security risks: While the work is done entirely through services and applications without any intermediaries or third parties controlling and monitoring what is happening, decentralized financing applications will be vulnerable to some risks associated with software errors and security vulnerabilities that hackers may find.
Greater likelihood of problems from user errors: Decentralized finance applications depend on working freely without intermediaries through blockchain, which may open the door to some problems associated with errors that users may commit while dealing with these applications, as the process that you have performed cannot be undone. Without communicating with and consenting to the other party.
The applications are not easy to use: despite the fact that the goal of decentralized financing is to make financial services available to everyone, these applications and services still use interfaces that are difficult to deal with for the average user who does not have sufficient experience in this field, which is a real problem if it continues Developers ignore optimizing their app interfaces.
