The world of cryptocurrencies is growing exponentially. This decentralized world is moving at an incredible speed, making it nearly impossible to keep up with changes in the cryptocurrency market. This year, there is hardly anything that has attracted the attention of the crypto community more than the emergence of DeFi (decentralized finance) applications including gaming and NFT.
A few years ago, there was no concept of decentralized finance in the blockchain industry. It took Defi only a few years to transform from a little-known “poor boy” to a “tycoon” in the blockchain industry.
Decentralized finance consists of two terms: “decentralized” and “finance”. In fact, the very concept of “decentralization” is very complex and difficult to understand. DeFi promises many benefits, especially for removing the influence of regulators and intermediaries and opening up more financial markets for individual investors. 2020 is a special year for cryptocurrencies as many cryptocurrencies outperform most existing assets, but 2021 looks more promising.
In fact, the adoption rate of DeFi is staggeringly high. From December 10, 2020, to the end of quarter 1 of 2021, the total lock-up value (TVL) of DeFi transactions soared from $13.5 billion to $38.5 billion. From the beginning of January to March, the transaction value increased by approximately USD 23.6 billion. There is no doubt that this is a clear sign that the industry is in a state of madness. In addition, its impact on the cryptocurrency market cannot be ignored.
Where does the name come from?
The word “DeFi” first originated during a Telegram chat in 2018 between entrepreneurs and Ethereum developers that include Blake Henderson of 0x, Brendan Forster of Dharma, and Inje Yeo of Set Protocol while discussing the name of decentralized applications built on Ethereum.
Necessity is the mother of invention
Bitcoin launched the decentralization revolution by providing people with a solid, non-sovereign digital value storage system. However, a healthy financial system requires a lot of assets. Users want services and products that they can invest in their work. This is what DeFi does. DeFi refers to infrastructure that goes beyond traditional financial systems such as lending and exchanges.
DeFi is a broad term that refers to various financial applications that use cryptocurrency or blockchain technology to solve problems that exist in traditional financial systems.
What are now the core benefits of DeFi?
Based on Blockchain, DeFi can be seen as a group of second layer applications which supports DeFi to obtain the essence of decentralization. The core advantages of opening finance are shared with the core benefits of blockchain:
- With true decentralization DeFi provides resistance to censorship, global participation regardless of social status, and trust in third parties.
- The use of blockchain as a technological infrastructure enables relatively fast and inexpensive transactions/payments, the immutability of financial contracts, and the automation of contracts.
- DeFi started the new era of financial services including loans, lending, borrowing, yielding, and farming.
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