With the help of blockchain technology, decentralized finance (Defi) establishes different financial applications within an ecosystem without including banks. The Defi platform combines the best of traditional banking and blockchain technology. There are features of this technology that replace some of the financial services, such as smart chains. Defi services are thus based on blockchains, and Ethereum is the most commonly used of them.
These platforms can perform a variety of functions. In addition to this, users can borrow money from other people, watch price movements, trade different crypto pairs, and on top of all these features, gain interest to give themselves a better saving plan.
Decentralized finance has been around for over a decade. In a remote Telegram chat involving numerous prominent businessmen and Eth developers, Defi was introduced for the first time in 2008. Inje Yeo of Set Protocol, Blake Henderson of 0x, and Brendan Forster of Dharma were a few of those who attended. In the meeting, the main topic of discussion was addressing the methodology for open financial applications based on Ether. There were a few alternatives laid on the table, including Open Horizon, Lattice Network, and Open Financial Protocols, but Henderson said Defi would be the best fit.
In what ways does the public network increase user accessibility?
Many of the features of Defi can help public networks remain accessible. The smart contract concept is perhaps its most prominent feature. These smart contracts are often confusing to many people. There is no interference from third parties in the smart contract between the anonymous user and the consumer. Third parties can include higher authorities, banks, government officials, or any other external force. A security token ensures that one’s transaction is secure and will produce the exact result one is expecting. There are no intermediaries involved with these functions.
It is only trust that is needed in this concept, rather than having the bank make the consumer sign a contract and agreement. Trustworthy technology is important for making sure that all parties are performing their duties according to their agreement. As a result, these services usually come with a high fee. Also, there is the possibility of a so-called trustworthy authority committing fraud or parting ways with the opposing party. Since the concept is a smart contract, the user is not trusting any authority but simply the smart contract itself.
In this technology, it might seem surprising, but decentralization is the toughest requirement to meet. It is difficult to develop a comprehensive approach in cases of problems when authority and intermediary involvement is completely removed from an interface. This is due to the fact that unilateral changes to a platform cannot be made without considering the community’s consensus.
However, even though these Defi platforms are not all 100% authority-free, this technology is on its wavelength. Still, they are striving to achieve that goal in a gradual process of waiving authority. Besides its decentralized nature, the Defi also features an open ecosystem that anyone can take advantage of. Having this level of openness allows for a great deal of opportunity and benefit for consumers. Therefore, “open finance” and Defi are synonymous terms. It allows traditional financial institutions to incorporate new blockchain concepts into their systems.