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Blockchain, Decentralized Finance, Featured

Empowering Decentralized Finance (DeFi): The Contribution of Blockchain Technology

The financial sector in the world was dominated by financial institutions and traditional banks. In recent years, this dominance has slowly reduced as decentralized finance is gaining acceptance. Decentralized finance or DeFi is all about providing financial services and applications built on blockchain technology. The foremost advantage of DeFi is that there is no central bank controlling these finances. It also ensures that everyone has uniform access to financial services. Therefore, Defi has the potential to break free from the monopoly of centralized finance and grant financial freedom to many underprivileged people. 

Role of Blockchain in Decentralized Finance (DeFi)

Blockchain technology is the main technology that facilitates DeFi in numerous ways. It uses smart contracts that help in carrying out self-executing agreements. The smart contracts carry out transactions whenever certain clauses of the contract are met. The digital ledgers of blockchain represent the smart contracts and it records all transactions transparently and securely. The major features of DeFi include the following:

  • Transparent
  • Decentralized
  • Programmable
  • Permissionless
  • Trustless
  • Pseudonymity

Impact of Blockchain Technology on Decentralized Finance (DeFi)

Reduction of fees

Traditional financial institutions have different service charges. Sometimes, the charges are so high that poor and unprivileged people cannot afford it. This is the reason DeFi has low transaction charges, thereby improving the chances of financial inclusion significantly.

Promotes Transparency in Decentralized Finance

Transparency enhances the credibility of finances. Fortunately, this is one of the best features of blockchain since all transactions are easily visible. Thus, this is very useful to prevent fraud and manipulation.

Improves Worldwide Accessibility of Decentralized Finance

Decentralized finance (DeFi) does not recognize territorial borders. This is why people from any corner of the world having an internet connection can access DeFi. Unlike traditional finances, users do not need minimum balance requirements. This particular impact may help in supplanting traditional banking in many corners of the world.

Better Control

Decentralized finance because of blockchain’s features has ensured better control. Users can control funds, and assets directly without the need for any external intermediary. Moreover, the scope of freedom is so vast that even reliance on banks is not compulsory. 

Applications of Decentralized Finance (DeFi) Services 

Decentralized Exchanges

Many companies are offering decentralized exchanges. These offer trading with cryptocurrencies without the use of intermediaries. The common features of decentralized exchange are a user interface, admin panel, wallet solution, payment gateway, and multi-factor authentication (MFA). 

Staking

Staking essentially implies locking up cryptos to support networks and earn handsome rewards. 

Borrowing and Lending

Users can earn interest by lending crypto assets. Similarly, one can also borrow assets by offering proper collateral. Lenders offer borrowers with the anticipation that the amount be repaid with additional interest for offering instant access to funds. Therefore, DeFi borrowing and lending is more efficient, transparent, and accessible than CeFi. 

Yield Farming

Yield farming is another way of earning high-interest rates by depositing assets in DeFi savings platforms. The major benefits of yield farming include low risk, greater earnings than traditional finance, passive income, and support earning crypto ecosystem. 

Also Read- The Rise of Blockchain Development Companies

Conclusion

Blockchain technology is largely responsible for the widespread popularization of decentralized finance. It is an undeniable fact that DeFi is fundamentally changing the perception of people towards money.  Therefore, the positive side of DeFi is hard to ignore as it has the potential to break free the monopoly of centralized freedom, grant financial freedom, improve financial accessibility, and ensure better controls worldwide. 

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