DeFi is a financial system that operates on a decentralized network. this can eliminate intermediary institutions and make the many financial products offered on the system more efficient and economical.
What are the advantages of DeFi?
First of all, we need to analyze what problems a centralized financial mechanism faces.
Centralized finance has a fairly high interest rate
if we want to make a loan, the average interest rate can be up to 7-8% per year in most banks. But with the DeFi mechanism, network participants can “compromise” directly with each other. As a result, intermediary operating costs will be reduced and loans will have lower interest rates.
Centralized finance requires certification documents
Licensing and certification are complex issues with centralized financial systems. When we go to the bank and want to apply for a loan, the certification document will be quite a hassle. In addition, there are loan packages with high terms that make it difficult for many people to meet loan standards. This is understandable because in order to strictly manage the lending stage, banks must have a loan framework sanction.
In contrast to DeFi which is operated on the blockchain, all information will be recorded automatically, the bank does not need to ask for our credit certificate and can receive a convenient and suitable loan package.
Centralized finance has an individual impact
2008 is an example of the management weakness of the current bank credit system. A number of bad debt problems or debt overlaps can occur with the ordinary financial system due to the influence of loan censorship. But with a decentralized network, all loans will be predefined in smart contracts and minimize human factor errors thereby helping the network to operate on its own without the need for intermediaries.
DeFi Assets
Some of the assets currently being launched may be familiar to everyone. That is Bitcoin, Ethereum and others. This type of asset will have transparency of the flow of funds and users can track transactions that occur between wallet addresses.
There are more specialized types of DeFi assets, including stablecoins. It is a cryptocurrency that is pegged to an asset such as gold or fiat currency held in a reserve fund. Typically with fiat currencies, stablecoins will be pegged at a 1:1 ratio to that fiat currency.
DEFI (Decentralized Finance), is a new idea in the financial sector that makes financial activities more free without any party having full power over a currency value.
This idea was born in the cryptocurrency ecosystem, which promises someone to be able to make money and payments that can be accessed by anyone and anywhere.
The world financial system that has been adopted so far is a system that is still centralized, where the currency used in each country is still regulated by the respective country issuing the currency, starting from the total supply and government policies that have a large contribution to the value of a currency. currency.
In cryptocurrency, the DeFi (Decentralized Finance) or open finance system offers a more open system, where a token or currency is created by a community or society, managed by the community and used by the community.
Yes, we can easily interpret it as a financial democracy system.
What are the advantages of DeFi?
So, when it comes to the advantages of defi compared to the conventional financial system, of course, there are many advantages to this Decentralized finance system.
1. More transparent
In the defi system, we can monitor all financial activities transparently, all incoming and outgoing transactions are recorded on the blockchain, so we can clearly see the activities of a digital currency.
2. More accessible
The Defi system allows users to make transactions anywhere, with just a gadget and an internet connection, we can make transactions regardless of the nominal amount.
3. Can make a direct contribution
For someone who has an idea in the field of finance can contribute directly by creating a currency of their own, as long as they have a clear concept and goal that can attract investors from all over the world.
4. No market capitalism
In the DeFi system, everything is left to a community. The value of a digital currency is influenced by activities within the community, no single agency can influence the movement of a DeFi currency value.
And there are many more innovations that will be offered in this Decentralized Finance financial system, because this system is still very new and there are still many developments to be achieved in the future.
The DeFi-based financial system run by this smart program, allows you to do most of the things that conventional banks can do such as trading derivatives, securities, or other financial assets, carry out lending and borrowing transactions directly through a two-way connection without intermediaries (Peer- to-Peer), buying insurance products with easier terms, saving for the future, and so on, all of which can be done with a faster and easier process because there is no longer a need for third parties and other physical documents that are usually required in transactions. conventional. It can be concluded that with this DeFi will open up opportunities for the formation of a free, fair, and transparent financial market that can be accessed by anyone, anytime, and anywhere, as long as they have an internet connection to access it.
So, what exactly are the benefits of DeFi?
Open Access
To be able to use the financial services of the DeFi system, you do not need to apply to be able to make transactions, to third parties such as banks and other financial institutions. It is enough to create a digital wallet (digital wallet) so you can carry out various financial transactions that can be carried out using the smart contract program.
Pseudonym
Transactions made on blockchain technology are essentially anonymous. You do not need to provide any personal information related to yourself, be it your name, email address, and any other information about you when making a transaction. This certainly provides extra convenience for you in transacting. But unfortunately, this advantage is widely used by criminals in carrying out illegal transactions.
Flexibility
Transactions made on the blockchain network can be done anytime and anywhere as long as you have an internet connection. This will certainly make it very easy for you to transact. You can easily move your crypto assets, without the need for permission from other parties, no need to spend time queuing, and of course with costs that are much cheaper than conventional banking transaction fees in general.
Faster
speed in conducting transactions is one of the important breakthroughs in the world of finance and banking. With the DeFi system, to transfer funds, it only takes you a few seconds, much faster than conventional banking transactions in general.
