One of the new financial technologies is DeFi. It uses secure distributed ledgers that are similar to blockchain and cryptocurrency. DeFi is a peer-to-peer financial system that seeks to remove the control institutions, and banks have over money, financial products, and services.
DeFi's key phrase is "smart contract," which refers to computer programs stored on blockchain that automatically execute when they meet specific requirements. DeFi uses innovative contract technology to create protocols that imitate existing financial services in an open, transparent, and compatible way.
DeFi platforms provide various services, including loans, payments, trades, investments, insurance, and asset management. This list is rapidly growing and offers a glimpse into a new era of crypto-based innovation like flash loans, synthetic assets, and decentralized exchanges.
Based on peer-to-peer, decentralized finance (DeFi) removes all intermediaries from the system. DeFi uses peer-to-peer philosophy to execute "smart contracts" on the blockchain network. DeFi uses intelligent contracts technology to create blockchain networks with no human intervention. This minimizes errors and improves efficiency.
DeFi's Financial World
DeFi will revolutionize the trends in the accounting and financial system. This niche offers many opportunities for both blockchain startups and regular customers. We'll show several examples to help you understand DeFi in the modern monetary system.
- Lending and depositing platforms
Lending and depositing platforms are another notable use case for DeFi. DeFi protocols such as Aave and Maker DAO allow financial institutions to borrow, deposit, and exchange digital coins. Aave will enable users to deposit up to 30 crypto currencies, including stable coins. These are U.S. dollar-backed currencies that are more volatile than conventional ones. This platform is similar to a bank and offers different APYs (annual percent yield) for other tokens.
If both parties don’t have the same personal information, how decentralized platforms handle lending money cannot be obvious. Banks check their credit histories and financial standing to ensure that borrowers are paid back. DeFi platforms require borrowers to set aside funds to be transferred to lenders if loans are not repaid.
- Automated Investing platforms
The DeFi market also offers automated platforms for crypto investors. Bloq is a blockchain infrastructure company recently launched vesper, which automates DeFi transactions. The entire concept of the tool is very similar to mutual funds but on the blockchain. Yearn Finance is another set of DeFi tools that allows for decentralized lending, yield-farming, and insurance based on Ethereum. Yearn Finance can be used for passive investing, even though investors don't need to know the protocol.
- Marketplaces for Open Money
Open money marketplaces are an excellent tool for both borrowers and investors. Lenders put their money into a liquidity pool that borrowers can access. The liquidity pool comprises intelligent contracts that find the right assets for each borrower. It is not a bank, and platforms do not act as intermediaries. Agreements are automatically assigned to the borrower and lender when they take effect. They expire once all liabilities have been fulfilled.
DeFi is still a young field. It offers both regular financial service users and investors a variety of solutions. This niche has many opportunities, so there will be new ideas.
- Exchange Platforms
Decentralized exchange portals are one of the famous examples of DeFi products. Peer-to-peer protocols are the basis of the decentralized exchange. Let's say you want to trade Ethereum for XRP. You're relying upon a third-party platform when you use platforms such as Binance and Coinbase. Decentralized services are distinguished by using innovative protocols to facilitate transactions—uni swap pools tokens into smart contracts and transfers funds when all terms have been met.
Why is DeFi Famous?
Decentralized Finance (DeFi) is a way for the traditional financial industry to be decentralized. The primary goal of DeFi is to create an Open Financial Ecosystem.
Decentralized finance could be the disruption to traditional and fiat banking systems. It's being used by whom? Which one are you using it?
Crypto investors may be purchasing the coins of prominent DeFi players. However, they will only answer if you ask them if they have ever used crypto to send money to anyone.
Many DeFi platforms were designed to lend stable coins that are backed by fiat. They have survived the crypto winter as investments. MakerMKR began the year at $2.355 and is now at $704. Aave was launched in 2022 at $258. It is now at $85. In November 2021, the global DeFi ecosystem was worth $183 billion. This is a massive sector in the blockchain space.
DeFi is a new sector that is revolutionizing technology in accounting and finance. DeFi uses smart contracts and blockchain technology to create a decentralized, open financial system accessible to all. Although there are still many challenges, DeFi has the potential to be a significant sector. We expect to see more growth and innovation over the next few years. If any aspirants want to make a career in accounting and finance, they get various opportunities and a successful career ahead.