Decentralized Finance or DeFi is yet another latest buzzword that is taking the finance sector by surprise with its rising popularity and some controversies as well. DeFi has taken the traditional financial systems by storm by allowing access to financial services to such consumers who till now were left out. Leading DeFi development companies say that it is the greatest wave of innovation ever witnessed in the history of finance and DeFi is here to stay. 

Here in this article, we will let you know what is Decentralized Finance and state the reasons why it is here to stay with us. 

What is Decentralized Finance?

Decentralized Finance (DeFi) is one of the newest types of emerging financial technology based on secure distributed ledgers that are blockchain-backed and serves as an alternative to traditional financial services.  DeFi eliminates the banks or any intermediate institution’s control of funds, financial products, and financial services. 

DeFi has achieved the kind of attraction among consumers worldwide due to a number of features: 

• The fees that were charged by banks and other financial institutions in exchange for providing their services get eliminated. 
• An alternative way of keeping money in a secured digital wallet instead of keeping the same in some banks gives peace of mind to consumers. 
• Increased ease of use for consumers, as anyone with an internet connection, can join and there is no need for any approval from any centralized institution. 
• Faster fund transfers can be done in minutes or even a few seconds, which earlier used to consume a long time. 

Why Decentralized Finance is there to stay?

Centralized Finance (CeFi) is plagued with many issues, but what hurts it most is the involvement of third parties. This dependence on third parties many times runs into a lack of transparency regarding what is being done with the funds of investors, as there is little or even no accountability on the part of financial institutions. The scenario in CeFi is that one poor decision made by financial incumbents can negatively impact investors, as you are just supposed to trust them. 

DeFi owes its existence to the cryptocurrency ecosystem with a focus on digitizing access to financial services irrespective of any restrictions. DeFi empowers people to have control over one’s own financial assets, rather than trusting any financial institution to keep their valuables safe, as users take their own responsibility. 

DeFi is much more secure from the issues of a data breach or single-point failure than CeFi-based institutions. The improved financial privacy of DeFi is yet another thing to mention that CeFi lack. 

Decentralized Finance can transform the financial sector

DeFi strives to bring financial inclusiveness for people as anyone can gain access to the financial services that earlier were denied to many by banking institutions. 

DeFi protocols empower people to acquire loans, earn interest and expand avenues for wealth generation by available avenues or even grow in their careers by pursuing higher education. DeFi lets an individual put their digital assets as collateral for a loan or add cryptocurrency to liquidity pools and deposit cryptocurrency in protocols that can generate impressive yield. 

Conclusion – Decentralized Finance is the future

DeFi is a better mechanism by the design and has the potential to outrun CeFi in long term says the senior DeFi developer at Rejolut. This is said not only due to the reason that DeFi is providing users better facilities, but DeFi protocols do not rely on users to provide liquidity as legacy-based trading platforms do. Many DeFi-based protocols function by using an equation that automatically determines a token’s value based on demand. 

In the future, we will certainly see more ease-of-use features in DeFi protocols and the growing mistrust in centralized institutions will continue to push DeFi growth to another level.