DeFi has been a hot topic in the past few years. But what is it? And why does it matter? This article will outline what it is, the pros of DeFi, and the companies that use DeFi.
What is DeFi?
According to Investopedia, DeFi, also known as Decentralized Finance, is “an emerging technology based on secure ledgers like those the ones used in Cryptocurrency.” DeFi is used on a blockchain network to help secure transactions. The point of this is to record transactions in a new and safe way.
Pros of Defi
The main advantage of using DeFi is that it is peer-to-peer. This means it cuts out the middlemen of banks or other institutions. You do not have to cut through the red tape to simply make a transaction.
Another huge pro of DeFi is that it is accessible to most. All you need to have access to it is a smart device and an internet connection. In this day and age, almost everyone has these two things.
Cons Of DeFi
Along with some of the advantages of DeFi, there are some cons as well. One is that there is no middleman. Meaning no one is there to regulate any of the systems in place. Also, the price fluctuates and is not a stable currency. Although you may get a high APY (annual percentage yield), if the price of the crypto significantly goes down then the APY doesn’t help your investment increase in overall value.
DeFi is important as it gives more financial tools to people who wouldn’t normally have access to them. It is giving people more financial opportunities by providing people with loans, access to more complex trading strategies, and allowing for higher investment yielding opportunities. DeFi is the future of finance and there are several Web3 companies building tools to help people participate in it.
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