What is decentralized finance?
DeFi is important because it helps include people who don’t have access to traditional banking
Decentralized finance, often called DeFi, is revolutionizing our understanding of money and finance. Imagine a world where financial products are created and managed without the need for banks or financial intermediaries. This is the promise of DeFi, built on the revolutionary foundation of blockchain technology.
At the heart of DeFi are smart contracts, which are agreements that automatically execute themselves when certain conditions are met. These contracts are written into the code on blockchain platforms like Ethereum. With DeFi, users can lend, borrow, trade, and earn interest on their cryptocurrencies without a central authority overseeing the transactions.
One of the great things about DeFi is that it’s open to everyone. If you have an internet connection and a cryptocurrency wallet, you can participate. This means you keep full control of your funds, so you don’t have to put your money into a bank, which can sometimes be risky.
Why is DeFi important?
DeFi is important because it helps include people who don’t have access to traditional banking. Many individuals around the world – about 1.7 billion, according to World Bank Group – struggle to access basic financial services. DeFi removes geographical barriers and strict financial requirements, making it easier for these people to use important financial products like lending and saving.
Another key point is innovation. DeFi is always evolving, with new platforms offering different financial tools like decentralized exchanges (DEXs) and derivatives. This constant evolution allows users to find better investment opportunities and potentially earn more than they would with traditional banks.
Investing in DeFi can also lead to higher returns. By using DeFi lending and liquidity pools, users can often earn yields that are much higher than those from regular banks. This chance to make passive income is appealing for many people looking to grow their wealth.
Lastly, DeFi has a strong resistance to censorship. Because it runs on decentralized networks, DeFi platforms are less likely to face government regulations and restrictions that can affect traditional banks. This feature gives users the freedom to engage in financial transactions without worrying about government interference or account freezes, which are common issues in conventional finance.
