Decentralized finance is not a single platform, but the generic term for a multitude of ideas and projects, the aim of which is to build a future-oriented, decentralized, transparent and therefore trustworthy financial system. If the disruptive potential is now used for cooperative business models, banks and customers can benefit equally. Every reaction stimulates a backlash.
This cardano dex platform also applies to the financial sector, in the course of the global financial crisis from 2007, central banks established controversial economic measures that fueled the distrust of many market participants in the powerful institutions. There was a growing awareness of the dependence on a few decision-makers the central banks who control the global financial ecosystem.
With the launch of Bitcoin in 2009, a countermovement emerged, away from centralization towards decentralized finance (Defi). Experts believe that distrust in centralized financial structures is the catalyst that will continue to drive Defi growth and establish competitive models for traditional banking.
Blockchain financial products – liquid cash flow via smart contract
The term Defi generally includes all financial transactions and services that are not, as in the traditional financial sector, subject to the management or control of a central actor (e.g. a bank or stock exchange). In Defi applications, these tasks are usually performed by a blockchain protocol. Using smart contracts, for example, the payment conditions of a transaction are stored, which are then automatically executed without the intervention of third parties and the possibility of manipulation as soon as the agreed requirements are met. In this way, no actor has sole control over transactions, which prevents censorship and centralization.
In the decentralized financial system, classic financial products are presented via applications, so-called apps. This includes trading in securities, digital investments intangible assets or granting and drawing on loans. For example, in the traditional financial world, banks only grant and quantify loans to customers who meet certain requirements. In a Defi network, on the other hand, anyone can receive a loan that is regulated by a smart contract.
Many of the platforms specializing in crypto loans offer interested parties the opportunity to borrow money in the form of cryptocurrencies or to lend it to other network users. A previously defined amount of tokens is usually used as security. Most platforms automatically assign lenders and borrowers to each other, with interest rates defined based on supply and demand.
Defi defines the future
By using blockchain technology, Defi business models can be faster, cheaper, more customer-centric and more agile than conventional financial services. Thus, a Defi economy has the potential to be disruptive and to transform existing systems in a meaningful way – not to replace them. Money and financial institutions should take advantage of this opportunity and integrate Defi applications into their systems and products to offer customers a catalogue of future-oriented services via specialized online platforms.