UNDERSTANDING DEFI(DECENTALIZED FINANCE)
What is Defi?
Defi(Decentralized Finance) is an umbrella term used to describe platforms that offers a per to per (P2P) financial service using blockchain technology.
Note: Defi is an emerging technology i.e it's still new.
AIM OF DEFI
1)
To reduce transaction time: Unlike traditional banking system that takes time to validate transaction, Defi drastically reduce the time of sending and receiving money.
2)
To make financial services more accessible: with Defi, accessing financial services like lending and borrowing money are carried out with ease with gender or age restriction as seen in centralized finance.
UNIQUENESS OF DEFI
a)
Borderless: As opposed to traditional banking system, with Defi, you can transfer money from one person to another and from one country to another country without interruption
b)
It eliminate third party: In centralized financial system like bank and cooperatives, there is a central authority that decides how you send and receive your money. But with Defi, you are in total control of how much money you send and receive without interference from anybody.
c)
Fast: With Defi, sending and receiving money is very fast as opposed to traditional banking system where bank workers can only process your transaction at their convenient time. Furthermore, banks don't operate on weekends and at night while Defi is available 24/7.
TERMINOLOGIES USED IN DEFI
AMM (Automated Market makers)
DAO (Decentralized Autonomous Organization)
STAKING: voluntarily giving out your cryptocurrency for a specific period of time to earn percentage interest
YIELD FARMING: Earning cryptocurrency for holding another cryptocurrency
LIQUIDITY
Note: Staking, yield farming and providing liquidity are ways of using Decentralized Finance(Defi) to earn digital assets
DAPP (Decentralized Application)these are softwares that makes Defi (Decentralized Finance) services possible e.g Trustwallet etc
