A New Decentralized Financial System

Decentralized Financial System

The way to use blockchain and smart contracts is decentralized finance. These applications are abbreviated as DeFi. A decentralized financial system will help people earn more, but in the meantime, you can play at the best ऑनलाइन कैसीनो NationalCasino.com. This approach has been gaining momentum in the last year, and we will talk about it in the article.

What is DeFi?

These are ordinary financial instruments built on the blockchain, more often Ethereum. They are based on open-source protocols or modular structures.

Decentralization is not always suitable, and many DeFi applications take this into account. They offer hybrid digital assets/traditional financial services such as Black Fi. An alternative term is “open financing”, where an ecosystem of integrated digital assets, blockchains, and open protocols is combined with traditional financial structures.

What Is the Idea of Defi?

The idea is that DeFi will replace the traditional technologies of the current financial system with open-source protocols that meet the same needs. This is a promising idea, its potential is estimated at billions of dollars. But this is unlikely to happen in the next decade. Supporters of DeFi compare this phenomenon to how the Internet has replaced traditional media channels.

Types of Financial Projects on the Blockchain

  • Open credit protocols
  • Asset release platforms and investing
  • Asset Management
  • Decentralized prediction markets
  • Exchanges and open trading platforms

This is not an exhaustive list of what can be attributed to DeFi.

However, today most of these protocols do not bring money. Some of them are successful by some indicators, but it is still unclear whether these indicators make real money.

For example, Meta Mask processes thousands of transactions per day but does not turn them into money yet.

0x, a decentralized exchange that has processed more than 700,000 transactions, is of practical importance, but so far their token has not had a real use case. They have a plan to implement the token, but so far the situation is like this, and this is true for 99% of tokens.

Some of the DeFi projects are aimed at creating a set of smart contracts that lock ETH and other tokens without the need for a network token. These are projects like dYdX and Uniswap.

How Can the Defi Project Earn Money?

The financial model of such a project is not so simple.

The most obvious way is to take a commission for using a complex protocol. This is how the entire financial industry works. No one creates great products by working for free. The only thing is that such a model has risks:

  • it is unclear to the user why I need something that replaces the old if there are no monetary advantages,
  • you can’t build marketing on commission-free operations,
  • more work on the brand, educating society about decentralization.

What Are the Advantages?

The developed smart contract can be more effective than traditional financial products. It reduces the cost of operating money markets. This reduces fees and costs for the end-user.

When we talk about large transfers, in billions of dollars, a reduction in commission by half a percent can feed the city.

The second advantage is greater transparency. DeFi is easier to understand, their code is open. This makes it easier to attract developers. The brand around the open-source project increases security.

Third— it is easier to create DeFi instead of entire blockchains. There are so many competitors of Ethereum and Bitcoin that are doing a fork and slightly changing the protocol. But the reality is that many of these blockchains will fail. There may be a need for unique circuits, but network effects greatly complicate the process.

DeFi is created on any platform with smart contracts. Such protocols can be implemented on different platforms.