DeFi is short for “decentralized finance,” a term used to describe varieties of financial applications in crypto, that's designed to eliminate financial intermediaries.
Defi is finding real life usage because centralized systems can disrupt the speed and sophistication of transactions while offering users less direct control over their money. Current banking and financial systems comes to mind as you can even be prevented from accessing your fund an example is the current Nigeria CBN regulations on accessing your domiciliary account. DeFi is an improvement on blockchain and crypto usage as it incorporates complex financial transactions.
Defi main advantage is completely eliminating middlemen from all financial transactions including loans, insurance, crowdfunding and betting. Paying with fiat for a transaction includes a middleman who can chose to accept or decline your transactions but with Defi, it's direct transaction between buyer and seller.
Most Defi applications are built on Ethereum ecosystem but recently, Tron is finding it's own niche in Defi. These coins are built for smart contracts as most people even agreed Tron copied ethereum whitepaper.
Smarts contracts automatically executed transactions provided conditions for it's execution are met and it offer wider flexibility. Example is the new Jeff pet project, Trustswap, when you want money sent to your employee by month-end provided he met certain performance indexes. These can be written in a smart contract
The common DeFi applications include:
Decentralized exchanges (DEXs): DEXs, a short form of decentralized exchanges are exchanges that directly connect users so they can trade cryptocurrencies with one another without trusting an intermediary or centralized exchanges with their fund. Transaction is done directly from a connected wallets of users.
Stablecoins: A cryptocurrency that's tied to an asset outside of cryptocurrency; Gold, Dollar, Naira, or Euro, for example to stabilize the price.
Lending platforms: These platforms use smart contracts to replace intermediaries such as banks that manage lending in the middle.
"Wrapped" bitcoins (WBTC): A way of sending bitcoin to the Ethereum network so the bitcoin can be used directly in Ethereum's DeFi system. WBTCs allow users to earn interest on the bitcoin they lend out via the decentralized lending platform. It's believed that total Bitcoin wrapped is more than Bitcoin traded presently.
Prediction markets: As a punter, I love this market as it's designed for betting on the outcome of future events, such as football matches or other sport matches. The goal of Defi in this market is to eliminate intermediaries.
In addition to these, new DeFi concepts have sprung up and includes:
Yield farming: Recently, Uptrennd announced 1UP is now available for yield farming. This entails serious research and knowledgeable approach as it's very risky but it offers larger returns, some as high as 1000%.
Liquidity mining: Liquidity mining is providing Liquidity on DEXs with your tokens with the hope of getting a free token in return. A recent example is the distribution of UNI tokens on Uniswap to traders. This too can be said to be an example of yield farming.
I'm excited about the future prospects of decentralized finance.
