Decentralized Finance (DeFi) is a new technological and financial ecosystem, formed by a set of IT protocols that are developed on the basis of decentralized networks that exploit blockchain technology . Its purpose is to restore trust in people and businesses to traditional finance, making it transparent, secure and democratic. In this guide we will discover the main characteristics of decentralized finance, and we will analyze the main advantages over traditional finance and fintech decentralized website.
What is decentralized finance?
The peculiarity of decentralized finance is the lack of censorship , both from the point of view of the technology that you choose to use and from the regulatory point of view. The creatives and geniuses of our time, developers , have the opportunity to give free rein to their creativity using open-source technologies, without bureaucracy and resistant to censorship by governments or financial market supervisors. The problem is to get them to agree on which technology to use, the parties currently facing each other are different: those of the Bitcoin and the Lightning Network on one side and the Ethereum lovers on the other.
Developing a DeFi solution allows developers to worry about bureaucracy only a posteriori and not a priori, you shouldn’t have to ask anyone for permission to write computer code. It is a bit like if before doing a Google search, you had to check the civil or criminal code. The internet doesn’t work like that nowadays.
Decentralized finance is in its infancy, some projects and startups were launched in 2019. The early investors retain begun to seize an attention in the issue, a few weeks ago the information came that the popular endeavor money reserve Andreessen Horowitz (furthermore known as a16z) remembers donated 25 million dollars in Compoundung Finance services.
How It Functions
Blockchain techniques is portion of the wider home of Distribution Ledger Technologies (DLT) to which they are broaden some particular characteristics. A Distribution Ledger is a database shared between multiple participants. Most companies currently use a centralized database. DLTs store data on independent synchronized computers, increasing security and interoperability. A Distributed Ledger eliminates the need for a central authority or intermediary to process, validate or authenticate transactions.
Main advantages of decentralized finance
Among the aspects on which it is important to pay attention to evaluate the effectiveness or otherwise of decentralized finance solutions, we must not focus on their performance, in fact currently the main fintech solutions (apps, platforms and marketplaces) guarantee superior performance compared to solutions. DeFi but on trust. The fintech startups develop mainly proprietary or private software, in short, not open-source, which cannot be modified by users except upon a request and authorization from the company. Software always runs the risk of being censored by an authority. The promise of decentralized finance is to be resistant to censorship .