Decentralized finance (DeFi) is a blockchain-empowered transparent, permissionless, and open-source financial ecosystem that eliminates the role of central financial mediators like banking institutions, exchanges, or brokerages, to provide conventional financial instruments. Preferably, it uses blockchain to replace the middleman with a smart contract.
DeFi principles empower investors to borrow or lend funds without a middleman, contemplate cost changes on a scale of assets relating to derivatives. In short, we can say it is the key to merge blockchain into traditional banking systems. Investors can hold and control their money and hundreds of transactions can be processed within seconds without any single point of failure.
How DeFi Solutions Work?
Banks act as the functional body in traditional finances, while in Decentralized Finance, blockchain technology performs this task for the users without any human involvement. This eliminated human interference has removed the chances of fraud, hacks, and risks of tampering with records.
Decentralized Finance needs two major components to work; the first is the currency to operate with, and the second is the decentralized infrastructure to operate on. In the traditional financial system, financial institutions and banks act as the operating infrastructure and the physical currency, i.e., US Dollar as the currency. Whereas DeFi replaces both the components with Smart Contract-enabled decentralized infrastructure and cryptocurrency.
Prominent DeFi Applications
Decentralized Exchanges (DEXs)
These exchanges don't need an intermediator to operate. They are very much secured and can process hundreds of transactions effortlessly by eliminating any central authority. Decentralized exchanges enable users to trade crypto assets trustlessly without any central administration. Cryptocurrencies traded through DEXs are not stored in a 3rd-party, or an escrow wallet, stored in a distributed network managed and operated by the network members.
SushiSwap, Curve, and Uniswap are some of the common decentralized exchanges.
Lending Platforms
DeFi enthusiasts say that these platforms are revolutionizing the lending ecosystem. Instead of an intermediator, these platforms use smart contracts — empowering lenders & borrowers to be a part of a decentralized ecosystem. Without selling their crypto-assets, borrowers can obtain liquidity, while lenders use their assets to loan amounts for borrowers and earn interest from it.
Aave, Compound, and Maker are some of the top decentralized finance lending platforms.
Prediction Markets
It allows shareholders to bet on the results of market events about to occur. Like conventional future prediction programs, these platforms work with decentralized functionality, which doesn't need any external authority interference.
Augur, FTX, Gnosis are some of the DeFi prediction markets.
Yield farming
It is the most trending term in the world of decentralized finance, and the phenomenon of locking crypto assets for getting rewarded in decentralized exchange is known as Yield Farming. Some of the well-known crypto coins such as ether, dai, tether are used for staking by yield farmers.
A few of the prominent yield farming platforms are Aave and Money markets Compound.
Benefits of DeFi Development Services
You can access an exclusive pool of benefits by collaborating with the DeFi professionals here at SARA Technologies. We ensure highly secure, trusted, and dependable decentralized business solutions.
Decentralized
An organization and its operators do not operate these enterprise operations — preferably; the rules, instructions, and commands are inscribed in the form of code (smart contract). After deploying the smart contracts to the decentralized ledger, DeFi applications run automatically without human interference, except periodical testing and bug fixing
Transparent Code
The blockchain code is transparent and openly available for anyone to audit, which does not mean a lack of privacy. This phenomenon creates a trustless environment for anyone to understand the operationality of a contract or detect faults.
Remotely Accessible
DeFi applications are created to be openly available and virtually accessible from day one. No matter you are located in San Diego or Virginia, you can virtually access the DeFi networks, services, and solutions simply using a stable internet connection
Permissionless
Unrestrictedly, anyone can create the DeFi apps, and anyone can participate and utilize them as per their needs. As a whole, it is permissionless, developed, managed, organized, and accessed independently without any external authority interference. Unlike traditional financial systems, in DeFi, users directly deal with pre-coded blockchain contracts using wallets.
Extensible User Experience
If you feel like your requirements can not be satisfied with the available decentralized applications, you can create your own or go for a 3rd-party interface. Just like open APIs, anyone can create DeFi applications using smart contracts blockchain.
Components in Decentralized Finance (DeFi) Solutions
To understand the characteristics of decentralized finance, we have to know some of the crucial components. The DeFi components are somehow the same as those of our traditional financial systems; the only thing that makes them unique is their decentralized nature. Ethereum, Stablecoins, cryptocurrency exchanges, and lending services could be the major components of decentralized finance.
The blockchain-empowered Smart Contracts deliver the required framework for secure, stable, and reliable working on DeFi applications. In creating a stable decentralized financial system, each DeFi component has a unique function and is one of the most crucial essential features in DeFi. DeFi comprises 4 primary layers that are crucial for the DeFi popularity and make up the DeFi stack.
This is one of the most crucial components on which decentralized finance solutions are created; it is the basic layer whose role is irreplaceable.
It comprises a public blockchain accompanying the native digital currency, which is generally used to process the DeFi transactions; these might or might not be traded in various marketplaces.
This software protocol layer is specifically created to specify and set all the standard rules and regulations associated with governing specific practices, tasks, or activities. All the network associates are bound to follow this set of rules strictly. Decentralized Finance protocols empower interoperability, thereby unlocking a vast extent for its application and using various entities concurrently to develop a system application or deliver a service. For obtaining the required levels of liquidity in the decentralized finance ecosystem, this layer is an indispensable feature.
This is one of the most crucial factors that play the dominating role in making Decentralized Finance so popular. The name itself denotes that the application layer comprises end-user-oriented applications. The DeFi apps represent the described protocols in conceptual forms as essential consumer-facing services. Various applications on the landscape of cryptocurrency, like crypto exchanges and lending services, are found on the application layer.
