5 Main Benefits of Decentralized Finance (DeFi)
Ever since blockchain technology and cryptocurrencies first emerged, they have had a huge impact on the finance sector. In recent years the growth of the decentralized finance (DeFi) movement has started to show, with more and more alternatives to traditional financial services and institutions emerging each and every day.
The rapid growth of DeFi is a testament to the benefits it brings to the table. But if you want to know exactly what its advantages are, here are a few of its main draws:
In the traditional financial system, you need permission from an intermediary for almost any transaction – such as a bank. However DeFi is permissionless and public, which ensures easy access to financial services for anyone and everyone while also opening the door to various third-party integrations.
Overall this means that more people will have unfettered access to financial services – especially groups that may have faced restrictions for political or economical reasons.
The mismanagement of financial institutions or simple human error by their staff has frequently caused issues over the years. By using cryptography and consensus algorithms such as smart contracts, DeFi apps are able to overcome this issue and provide a high degree of immutability.
The immutability of DeFi also acts as an additional layer of security and protection to help avoid fraudulent transactions and bad actors.
Lower cost and fees
Generally speaking the cost of applying DeFi solutions is lower than that of traditional finance. That in turn allows the fees to be lower, which lets people from lower income brackets benefit from a wider range of financial services.
One of the big attractions of blockchain technology is the fact that it provides greater transparency. Its distributed ledger is shared by everyone so details of transactions taking place on the blockchain are publicly available.
Not only can the transparency of DeFi help to improve due diligence, but it can also make it easier to identify and avoid scams or fraudulent activity.
On the whole DeFi systems are more convenient than those of traditional finance. Transactions can be carried out with just a single click, as opposed to having to fill out lengthy forms and gain approval.
Because of the way DeFi is structured on blockchain technology, you can access its services anywhere and at any time – provided you have an internet connection.
Starting to see why DeFi crypto services have flourished in recent years? Although it does have some challenges that it needs to overcome (such as uncertainty, lack of insurance, and regulations) – the promise of its benefits are attractive enough to have driven its growth.
All in all it is safe to say that DeFi’s growth is likely to continue over the course of the next few years. As more dApps are introduced and the range of financial services that DeFi provides continues to expand, it could very well end up supplanting many of the traditional financial services and institutions as time goes by.