INTRODUCTION
The emergence and rapid growth of Financial Technology (FinTech) in the global economy has proven that this is the future of financial sector, especially in the cryptocurrency ecosystem. DeFi is the abbreviation of Decentralized Finance, and its an emerging financial technology based on distributed ledgers similar to those used by cryptocurrencies. Prior to this era, the financial system has largely and totally been operating a centralized financial platform, whereby the financial system is full of third parties who facilitate money movement between different parties, with each one charging fees for using their services. Meanwhile, Decentralized finance eliminates intermediaries by allowing people, merchants, and businesses to conduct financial transactions through emerging technology.
BACKGROUND AND DEFINITION OF DEFI
DeFi is a crypto movement that is built on cryptocurrencies like ether, open to anyone in the world with an internet connection. DeFi is a trustless application, meaning the applications are not controlled or hosted by a central party such as a bank or a government. The aspects of cryptocurrency such as cryptography, smart contracts and blockchain technology allow this system of decentralized finance to exist for the global community to utilize.
MakerDAO happens to be the first DeFi project. This was created in 2015 on top of the Ethereum blockchain. It allows any user to lock ether, or ETH, via smart contracts and generate DAI, a stablecoin pegged to the U.S. dollar.
Decentralized finance adopts the blockchain technology that cryptocurrencies use. A blockchain is a distributed and secured database or ledger. DApps (Decentralized Application) are the means by which customers access DeFi products, Dapps are used by DeFi protocols or product customers to interact which each other and are powered by ‘Smart Contracts’, programs which run like contracts when predetermined conditions are met and are stored on a blockchain.
IMPORTANT OF DEFI TO THE ECONOMY
The goal of DeFi in the economy is to create an entirely new financial system, completely independent of the traditional financial economy. There are billions of dollars being invested into this goal, along with the efforts of thousands of developers around the world. DeFi is to create an open financial market that is trustless and permissionless. Significant development and investment have been placed into the advancement of DeFi. Much of the technology in the DeFi space builds upon, and improves, the TradFi system, possibly resulting in a better outcome for users – you and your clients.
Defi strives to build a more fundamentally functional financial landscape enabled by blockchain technology. With the adoption of blockchain technology, the economy will benefit from the following three aspects the most;
Seamless Payment system
Easy Accessibility
Transparency.
ADVANTAGES OF DEFI
No Permission required
No need to depend on bank
Flexible earning opportunity
More opportunity for innovation
Customers are in control
SOME OF THE CHALLENGES OF DEFI
DeFi is still in its infancy, and hence there are some challenges that the technology is facing and needs to be countered for further adoption.
- Security Threat and Vulnerability to Scam; There is a constant security threat in some projects that are not built properly; in the past, there have been instances where hackers got away with millions of dollars worth of cryptocurrencies in a Defi protocol exploit. In many cases, the protocol itself also turns out to be a scam, and therefore, there is a visible skepticism for DeFi, and the ecosystem is still riddled with infrastructural mishaps, hacks, and scams.
- Poor Awareness and acceptability. The awareness of a Defi is still very low despite the significant impact and advantages to the economy. Also because its not regulated, most people are not comfortable and they are not ready to accept the platform.
In conclusion, the adoption of DeFi in today's world is increasing daily but it takes education and right guidance on projects to invest, this is one of the way we can control people from getting burn by bad ass in the space (scammer).
https://www.nasdaq.com/articles/understanding-defi-and-its-importance-in-the-crypto-economy