Defi or decentralized finance is a new rave in the crypto industry with so many benefits. Defi Protocols are made possible by the Ethereum network, their main function is to provide traditional financial services using blockchain smart contracts. These services may include, lending, trading, and staking without the involvement of financial intermediaries. The main purpose of Defi is to cut off third parties in financial transaction services.
Defi technology is decentralized, making investment opportunities accessible for users all over the globe eliminating government control. This protocol has grown rapidly since its introduction in July 2018, by a group of Ethereum developers over a Telegram chat.
Defi Protocol is capable of providing various other blockchain solutions for financial services. Financial technology companies use Defi to offer traditional banking services in an automated open-source platform. Investors can invest in Defi by buying Ether or other coins that use Defi technology, which will enable exposure to the entire industry. Users can earn interest by making deposits in a lending platform, receive staking rewards when they stake their funds, trade, or yield farm.
Defi Applications
Defi application is very easy, there is no need to create an account, get approved, or verify identity. All you need is, send your Ethereum to an Ethereum wallet to get started. The best wallet to use for Defi programs is Metamask, since it has a Google Chrome extension that can enable you to connect to Defi platforms via your browser.
You can use Defi programs in a few clicks once you have successfully sent your Ether token to your Ethereum wallet. Once you get to a Defi platform, you will be prompted to connect your wallet to the website. After connecting your wallet, you can manage your crypto from the program’s front-end interface.
Cost of Using Defi
You may incur some cost using Defi unless you manage a few thousand dollars. Ethereum network is known for its high gas fees, which are calculated based on the hash rate or the computing power of a transaction and the network congestion at a given time. It may cost up to $5 to send transactions on Ethereum and $20 for trading and lending.
Fortunately, layer 2 solutions like Polygon, reduce transaction fees, so you can invest a smaller amount of money. You can start investing with as little as $100 on a layer 2 solution.
Governance
Defi operates on the Ethereum network which is difficult to shut down, anyone on the internet can access it from anywhere across the globe. Governance in Defi organizations, from the fees, charged users to the products offered is meant to be decentralized. This means that though an idea of decentralized application may come from one person, or a group of persons, driving it at inception, as the network grows, they often seek to step away as the network gains ground, handing control to the community that uses it. This type of transition could be in form of a Decentralized Autonomous Organisation, DAO, with its rules and regulations embedded in the programming code. It may issue governance tokens that give the holder a level of control and the right to make decisions.
Peer-To-Peer
Defi apps can also be peer-to-peer, Defi exchanges or Decentralized Exchanges (DEX) do not have intermediaries. If you use a DEX built on the Ethereum network such as Uniswap to trade tokens, you will get those assets in your crypto wallet facilitated by Uniswap smart contracts. That means fewer third parties and lower transaction costs.
Where to Buy Defi Tokens
Many exchanges allow you to buy Defi cryptocurrencies, among those are, Binance, Bitfinex, and the Latoken. You rest assured that your funds are saved on these exchanges.
Bitfinex
Bitfinex is a global liquidity provider, that makes the best crypto trading services available to users. Besides, Bitfinex gives you a 6% rebate fee for signing up. This is a good platform to buy Defi tokens.
Binance
Binance is the world’s largest crypto exchange by trading volume, a very safe platform to buy your crypto assets. Binance has a very wide coverage that allows users to access the platform across the globe. You can invest, trade, and stake on this exchange.
Latoken
The Latoken exchange has so much for its users, making investment and payment easy worldwide. It offers users the best trading experience with automated financial services. Users can get up to 25% cash back when they trade or complete a transaction.
Benefits of Defi Protocols
The uniqueness of the Defi protocols is that the applications are open for anyone to access. All a user will need is an internet connection and a blockchain wallet, that is why sometimes Defi is referred to as “Open Finance.” Here are some other benefits that make Defi a special and interesting technology.
Defi Protocols Are Decentralized
Defi protocols are built on public blockchain like Ethereum. This blockchain consists of different nodes or computers running the blockchain software. These nodes are spread out across the globe and it is impossible to censor them or stop them from functioning.
Defi platforms are built to be managed by the community that uses them, allowing users control over their financial applications. Users can participate in major decisions including changes to the platform. They have access and benefit from growth, no central authority can take control of these platforms or change the rules.
Non-Custodial
Defi platforms are non-custodial distributive networks that allow users total control over their assets and data. They allow the transfer of funds from person to person without intermediaries.
Non-custodial is a term used to define Defi applications features that eliminate third-party control and control over your assets. Users on the Defi platforms hold the keys to their wallets and control their funds. This reduces the risk of censorship and losing money through hacking as is the case with centralized exchanges. It also means users bear their own risks in case there is any mishap for instance loss of seed phrase or failure in the authentication.
Transparency
Defi application code is open for anyone to see, inspect, be able to monitor how the applications and protocol work or track their funds. This open-source allows developers to build upon existing applications and create a link in the ecosystem that supports the strength of each other.
Transparency allows developers to copy applications and build a better version of the original. This creates strong competition and makes developers deliver the best possible products. For example, if a platform is charging higher fees because it offers very great features, users can copy and create a replica with better features at a lower cost.
Defi Protocols Are Borderless
Defi protocols are open networks accessible to anyone from anywhere, just like the internet, information can be transferred globally anytime. All that is required is a blockchain wallet for users to start interacting with Defi applications anywhere there is an internet connection.
They do not require users to provide personal information, such as personal IDs, addresses, or even usernames and passwords. The only identity required is the blockchain wallet.
Defi application is a borderless interface that allows users to access automated financial services. It’s different from other centralized platforms that may require a stressful process and are insecure. Understanding how these applications work will enable users to relate better with them. Besides being decentralized, they are also open networks that can be easily accessed and monitored from anywhere.
