Decentralized finance is a financial system that operates without human intervention and is instead managed by smart contracts written as code. Although the new financial system is still in its infancy, billions of dollars are traded through DeFi projects today.
The World of Decentralized Finance
By: Ofek B. | 17-05-2022
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In conclusion
DeFi is an alternative financial system built by a large number of decentralized applications and based on the smart contract method. DeFi is on a huge rise, and seems to be unstoppable since it offers more for much less.
DeFi vs Traditional financial system
As we mentioned earlier, DeFi is built by decentralized applications (DApps). There are three major benefits to this innovative idea.
◉ Lower cost – When the system is decentralized and there are no banks involved, commissions of any payment are distributed only to system participants without the need to pay commissions to a third party such as the bank or credit system.
◉ Transparency - Thanks to blockchain technology, everything done in the financial system is transparent to everyone and can be viewed so that a third party cannot hide information from the ordinary person.
◉ No developmental barrier – It’s difficult to develop products and software for the traditional financial system. However, in DeFi anyone with reasonable programming abilities can develop applications that will serve the users in the system and thus expand the system's capabilities.
Smart contracts are digital agreements between two parties where the terms are set in advance and written as a code on the blockchain. The code itself manages the agreement without human intervention. For example, a smart contract of monthly payments between person A and person B is entirely managed by code.
Decentralized finance is built up by a large number of decentralized applications. These applications work under smart contracts without any human involvement.
Smart contracts explained
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