What is defi?

Decentralized Finance (DeFi) is an umbrella term for decentralized financial products and services accessible to anyone on the Blockchain.

But what is the need for something this complex?

Problem:

Suppose you want 10000$ urgently you ask your bank for it, they check your bank account it has only 5000$ so they refuse to send.

But you need the money urgently so what could you do?

Apply for a loan? But it could take several days to pass.

Now what?...

Defi comes to the rescue: Lending and borrowing

You go to a crypto borrowing and lending platform you put your crypto as collateral and in return get 10000$ in just a matter of hours, with a very low-interest rate as compared to the traditional banks!!

Now you must be thinking if the I have enough crypto why don't I just sell it instead of keeping it as collateral and take a loan. Remember crypto is an asset you don't sell it so soon, what if you sell it and the price goes up. But instead you keep it as collateral and even if the price increases you just have to give back the amount you borrowed and you will get your assets back!

Problems with centralized finance

• In the current financial system our money is controlled by banks:

  • They can stop you from borrowing money
  • They can even stop you from having a bank account

• Banks are vulnerable to fraud and corruption

• Traditional finance is very expensive

  • high personal loan interests (up to 18%)
  • high credit card interests ( up to 25%)

• Government create money out of thin air, giving rise to inflation -80% of all US dollars in existence were printed in the last 22 months

How defi helps to overcome those problems:

• Anyone having an internet connection can have access to financial services

  • 1.7 billion adults worldwide still don't have access to a bank account

• It is transparent, interoperable and faster!

• With very low rates

• Government don't have any control over it.

Other use cases of defi are:

• Decentralized exchange
• Stable coins
• Buying insurance
• Margin trading