What Is DEFI (Decentralized Finance) ? - It is a development with a target of having another financial system, where you don't need to go to any banks or getting attached physically from other people. DEFI also depends on cryptography, blockchain, and smart contracts. Smart contracts are the main building blocks of DEFI which means that without it there is also no DEFI and most of the DEFI are made from ethereum.
It makes several entities have a copy of every transaction which means that is not only single, it is a central source. It is good because they can limit the speed and sophistication of the transactions and at the same time offering users less direct control of their money. This thing also stands out from legacy payment methods, wherein there is always a middle man or authority who controlled the transaction and is authorized to stop it and record it in the ledger, which this cryptocurrency all of that is cut out of the picture.
Most of the application under DeFi are built with ethereum, it is easier to use for creating other applications beyond simple transactions.
Difference Between DEFI and CEFIDEFI:
1. permissionless
2. no KYC Required
3. open source encouraging free collaboration
4. censorship-resistant
5. cheaper mostly network fees
6. built on the blockchain
CEFI:1. permission
2. KYC Required
3. closed source decisions made behind closed doors
4. can be censored
5. expensive intermediaries charging hefty fees
6. built on old foundations
They also have to mention the potential risks associated with DEFI.1. One of the main risks for DeFi is the bugs from smart contracts and the changes in protocol that cam affect the existing contract. The clients will bring extra insurance to lessen the possible issues.
2. Strictly need general checking how decentralized the DeFi project is as well as the procedure for shutting down, if there are unusual things happen, someone has the admin key to shut down the protocol
3. Resource cost can be also a fundamental problem which may bring about a course of liquidations over numerous DeFi protocols.
4. Network fees and blockage is also considered as a problem.
DeFi FAQ1. "How do I make money with DeFi?"- Using Ethereum-based lending apps, as mentioned above, users can generate “passive income” by loaning out their money and generating interest from the loans.
2. "Is investing in DeFi safe?"- No, it’s risky. Many believe DeFi is the future of finance and that investing in the disruptive technology early could lead to massive gains.
But, it’s difficult for newcomers to separate the good projects from the bad. And, there’s been plenty of bad.
3. "When will DeFi go mainstream?"- While more and more people are being drawn to these DeFi applications, it’s hard to say where they’ll go. Much of that depends on who finds them useful and why. Many believe various DeFi projects have the potential to become the next Robinhood, drawing in hoards of new users by making financial applications more inclusive and open to those who don’t traditionally have access to such platforms.
4. "How will Ethereum 2.0 impact DeFi?"- Ethereum 2.0 isn’t a panacea for all of DeFi’s issues but it’s a start. Other protocols such as Raiden and TrueBit are also in the works to further tackle Ethereum’s scalability issues.
Source links:https://www.coindesk.com/what-is-defi?amp=1https://www.google.com/amp/s/www.currencytimes.co.in/what-is-defi-difference-defi-and-cefi/
