The Benefits of DeFi

DeFi, or decentralized finance, are peer-to-peer financial services that utilize blockchain technology and smart contracts, eliminating the need for intermediaries. Financial services such as decentralized exchanges (DEXs), insurance, and lending are now possible without the need of a stock exchange or bank. What are the benefits of DeFi?

  1. Permissionless — One of biggest benefits of DeFi is that participation is permissionless, which means that anyone can participate. All you need is an internet connection and a crypto wallet. PayPal, a digital online payment system, restricts hundreds of millions of people from using the service. Many of these countries could be blocked from using PayPal for political reasons, even though many residents of the country are not responsible for the restriction. DeFi, which isn’t controlled by any central entity, can be used regardless of any sanctions.

  2. Smart Contracts — DeFi, goes a step further than bitcoin by adding smart contract capability. Smart contracts can be made for DEXs, lending, derivative trading, and many other applications.

  3. Transparency — For public blockchains like Cardano, all transactions are posted on the blockchain, allowing anyone to confirm or review any transaction details.

  4. Security — Public blockchains like Cardano or Bitcoin use blockchain technology and cryptography, making transactions immutable and secure.

  5. Open-Source — While not all DeFi protocols open-source their code, many dApps do. Open-sourcing code contributes to decentralization and trust because it allows anyone to verify the code and to create their own smart contract.

  6. Lower Costs— DeFi could dramatically reduce the cost of transactions that happen in the real world.  For example, to get a loan from a bank, your interest rate includes administrative and operations costs a bank incurs.  If the bank has a physical location, then the interest loans it gives to customers has to be high enough to cover additional costs such as property taxes and building maintenance expenses.