Not only can centralized exchanges be slow with transactions, but they may restrict your control over your assets, as well. They may equally limit trading sophistication as they play catch-up to decentralized systems. In this article, we’ll look at the essence of DeFi crypto platforms and how users may benefit from this contemporary blockchain tech.

Understanding DeFi: Essentials to Know

What’s DeFi? 

DeFi (decentralized finance) refers to blockchain-based financial applications that simplify asset trading, lending, or borrowing. These apps disrupt the operations of traditional financial institutions to make their operations easier. Developers create DeFi using smart contracts — automated binding arrangements that anyone with the Internet may access.

Decentralized finance initially centered on Ethereum, but numerous other networks that offer lower costs and superior speed are emerging.

What’s DeFi Coin (DEFC)?

DEFC is a fairly launched and community-oriented token to access DeFi applications. The developers of the coin burned all their tokens before launching it and invested like everyone else. A DEFC transaction involves reflection, LP acquisition, and burn. 

Unique Reasons to Embrace Decentralized Finance

Using DeFi has many peculiar benefits that extol its superiority over the traditional financial system:

  • Permissionless: Unlike conventional financial arrangements, DeFi doesn’t demand permission before transactions take place, thanks to the use of smart contracts. This feature removes the dependence on third parties for data storage, oversight, and server space.
  • Immutability: Record manipulation, however slight, is impossible on DeFi. This unchangeableness is traceable to the excellent cryptography, consensus algorithm development, and incorporation. Protocols like POW (proof-of-work) ensure that the blockchain maintains accurate records forever.
  • Transparency: Shady financial procedures aid scams and illegitimate business activities. Fortunately, these occurrences are avoidable due to the transparent nature of the DeFi protocol. These applications also help identify fraudulent schemes.
  • Lending and Borrowing Facilitation: The presence of DeFi enables smoother and simpler verification on lending and borrowing platforms. Also, this protocol assures security for co-actors in a trade. 
  • Savings Apps: DeFi applications assist users in accessing numerous lending procedures, thereby improving their interest. Moreso, these users may perform borderless assets, moving across different lending protocols for excellent rewards. 
  • Tokenization: The use of smart contracts in DeFi allows for the issuance of crypto tokens to users. These tokens may help a user own fractional portions of physical assets. Likewise, they may be valuable shares in some digital applications.

How to Cope with Risks Attached to DeFi

All investments, whether digital or offline, have their peculiar risks. Therefore, it’s necessary to accept these risks before venturing into them for easier trading decisions. Accepting risks helps you take action when your move goes wrong. Common risks attached to DeFi include:

  • Technology Risk: Software is only as good as the coding protocols affected in their production. Sometimes, there may be errors in this code, and this may cripple functions. In other words, DeFi applications run on the blockchain, but they need a correct code collection to operate smoothly. Any mistake in a developer’s code may result in vulnerabilities within the protocol. If this weakness remains obscure for long, users on the app may pay dearly with their assets. 
    • Let’s point out that DeFi is not the problem here. Rather, it’s the developer’s error.
  • Asset Risk: DeFi applications require collateral before you may borrow their products or services. A DeFi protocol maker, for example, demands security worth 150% of the borrower’s loan. 
    • However, this isn’t the problem. What is? Cryptocurrencies are the typical collateral when borrowing from these apps. Unfortunately, these assets have fluctuating prices due to their volatile nature. Your position may liquidate should the assets you submitted as collateral fall significantly in value. As such, stablecoins are the more advisable collateral means on DeFi apps, thanks to their less volatile character. 
  • Product Risk: DeFi applications don’t provide insurance or regulation on the assets you invest in. Therefore, you may fail to regain the loan you give to others if they can’t repay as agreed. Luckily, you may have some security in the collateral that the application takes from borrowers.
    • To avoid this risk, you may invest with the more reputable DeFi protocols, but the less respected ones are typically more profitable. 

DeFi Unique Use Cases

DeFi has special use cases that are unavailable on other financial protocols. Let’s see how you may use the unique features of decentralized finance to your advantage.

  • Lending: DeFi applications offer you the opportunity to make profits with your assets instead of simply holding them. Unlike the monthly returns you are familiar with, you may lend out cryptocurrencies in return for minute rewards.
  • Secure a Loan: DeFi apps come to your aid when you’re short on finances. You may get loans within minutes since there’s no extraneous paperwork to fill out. What’s better? These protocols offer flash loans — loans with a short repayment period — that other systems don’t afford you.
  • Save Money: DeFi protocols offer you higher interest rates than traditional banks for keeping your assets in their care. This may help you build a savings fund over time.
  • Derivative Purchase: Decentralized finance options afford you the chance to place bets on some cryptocurrencies. You may see this arrangement as the crypto form of futures contracts or stock options. 
  • Trading: Decentralized finance applications facilitate P2P transactions of specific cryptocurrencies. In regards to the question of where to buy DeFi coins, many platforms are available to conduct brokerage-free crypto trading. You may improve your trading profits with the use of automated crypto trading systems, even with poor market knowledge. An example is Obolon9, a resourceful system for executing smart trading decisions effortlessly. You may try it out for free to start.

Wrap Up

DeFi is a modern-day solution to the limitations of traditional financial institutions, such as banks and other borrowing houses. Applications built upon the protocol offer users crypto borrowing, lending, and trading services, alongside plenty of other services. You may rightly describe DeFi crypto platforms as a superior alternative to the traditional financial system.