DeFi or Decentralized Finance refers to the use of Distributed Ledger Technology (DLT) in the world of finance observed Bahaa Abdul Hussein. DLT is known for being used in cryptocurrency in the form of blockchain. When used in finance, it can be used in finance and lending. The big benefit of DeFi is that there would no intermediaries involved. DeFi is fast-growing and is going to be the big trend in finance in the years to come.
What is DeFi?
DeFi is a financial technology that makes use of Distributed Ledger Technology. The main aim of DeFi is to do away with intermediaries allowing consumers direct access to financial services. Still in its initial stages, DeFi allows customers to work on a DeFi platform to access services like loans, insurance, etc. There would be no banks, agents, or any other parties involved.
It is a major innovation in the world of finance and is disruptive in nature. As and when DeFi becomes successful, it is likely to cause major upheavals in the world of traditional finance. Traditional finance organizations have complex procedures and availing their services is not so easy. Many people do not have access to their services. DeFi intends to democratize the financial system to make it more accessible to common people. The removal of intermediaries will DeFi financially attractive for consumers.
How does it work?
DeFi makes use of a DLT system like blockchain. In blockchain, records are stored in a ledger in the form of a chain of blocks. It is immutable meaning it can’t be changed or deleted. This feature makes DLT and blockchain highly secure. In DeFi, the applications would be communicating with a blockchain and people can carry out transactions like getting a loan, gifting, making a purchase, etc.
The DeFi application offers an interface using which users can communicate with each other. They can use the application to search for lenders or providers of financial services. They can then enter into secure transactions with other users to avail financial services. Since there are no intermediaries, it would be cheaper and faster. It would also be more secure and transparent for all parties concerned.
Conclusion
DeFi is a powerful innovation that is all set to revolutionize the world of finance. Working on DLT, DeFi will make finance more accessible to people and help increase its reach. In the next few years we can expect DeFi to take off in a big way. The article has been written by Bahaa Abdul Hussein and has been published by the editorial board of Fintek Diary. For more information, please visit www.fintekdiary.com.
