DeFi has exploded in popularity in 2021 and is considered the financial industry’s inevitable future, thanks to its transparency, security, and scalability. Without a doubt, DeFi is the economic civilization that best reflects the essence and superiority of Blockchain. A true investor certainly cannot stay out of DeFi.
So what is DeFi? How does it work? Why say DeFi is the future of the financial industry?
Let’s answer the above questions with RICE.
What is DeFi?
DeFi or Decentralized Finance is the term used to collectively refer to the financial system built and implemented based on Blockchain technology.
At DeFi, participants can use all the same services as traditional finance, including saving, investing, borrowing and lending, trading, and derivatives. DeFi allows users to manage their own assets and information instead of going through a 3rd party intermediary such as banks, bookmakers, or financial institutions. Therefore, personal data is unable to be collected, and financial activity is entirely unregulated.
How does DeFi work?
To understand how DeFi works in the simplest way, compare it with how users transact in CeFi (Centralized Finance).
When you want to buy any coin on a centralized exchange like Binance or FTX, you must create an account and provide complete personal information to the “exchange owner.” All of your assets are held by the Exchange with total control.
On the contrary, if you buy that coin on a decentralized exchange like PancakeSwap or Uniswap, you do not need to provide any info and verify your identity, meaning no one knows you are trading, and you entirely own the assets. With DeFi, the risk of identity or property loss is almost impossible.
From that, it can be seen that DeFi has many characteristics:
- Permissionless: Anyone can join DeFi without the provider’s permission or the authorities. Everyone is equal in terms of financial opportunities.
- Transparency: Every activity in DeFi is recorded and public on the Blockchain through a distributed ledger. No individual or organization holds or interferes with user activities.
- Anonymity: Participants are not required to provide personal information and verify identity. Therefore, absolute privacy is guaranteed.
Why say DeFi is the future of finance?
Tackling the risks of traditional finance
One of the challenges facing traditional finance is: Is it safe for users when all their information and assets are centralized in one place and held by others?
Since the birth of the cryptocurrency market, the world has witnessed a lot of large-scale attacks on centralized exchanges, causing heavy damage to users’ assets and identities. The most typical example is the 740,000 BTC hack in 2014 of the Mt.Gox exchange – once the largest exchange in the world, followed by Bitfinex to leaking a vulnerability in the multi-signature user account structure, causing the loss of 120,000 BTC (2016). More recently, in May 2019 was a hack of 7,000 BTC (equivalent to 40 million USD) on the Binance exchange because hackers stole API codes, two-factor authentication codes, and other information from many user accounts.
As such, participating in centralized exchanges cannot guarantee absolute safety. Meanwhile, DeFi’s transparency and openness give complete control of assets to users.
Scalability and growth
Not only removing barriers to traditional finance, but DeFi is also expected to be a trend in the financial market because of the explosive development power achieved in recent years. Most notably, decentralized financial applications are increasingly applicable in life:
The decentralized exchange extends to the network, supporting the trading of all the most popular assets on the market.
Borrowing and lending platform without registration procedures, easy mortgage, and benefit from preferential interest rates.
Crypto storage and investment wallet without custodial help earn money from many forms such as Farming, Staking, and Liquidity Mining.
And many other valuable applications such as Games, Social Networks,…
Experience RICE Wallet – a decentralized wallet for everyone to start exploring DeFi:
– App Store: https://apps.apple.com/us/app/id1601004738