Let’s look at the evolution of conventional banking and how we’ve come to realize the necessity to design a program that is not built on mighty middlemen before we go into the pros and cons of decentralized finance (DeFi).
Money and banking had no function in prehistoric societies. Two of man’s most fundamental needs were the ability to hunt for food and build a safe place to sleep. It became necessary for people to communicate with one another as the human population grew.
Say No To Human Error
Mismanagement by CBs and other intermediaries has been cited as a root cause of past financial meltdowns (TPIs).
However, unless the contracts themselves were poorly drafted, smart contracts eliminate the possibility of human error in the process on a daily basis. The financial errors are further reduced when businesses are connected with trade assistance systems like ethereum trader or others.
Before the advent of DeFi, obtaining a loan meant making a trip to the bank, where one would have to spend a significant amount of time waiting in line.
Whether you have DeFi, you can get a loan with one click, even if it’s the middle of the night. If you have an internet connection, you can access the market whenever and wherever you like.
To carry out practically any kind of financial transaction inside the confines of a conventional financial system, you are required to first obtain authorization from an intermediary.
You have to get the bank’s permission before you can take even a penny out of your account, but users of DeFi don’t need that kind of authorization to interact with financial services.
A Healthier Financial System
As demonstrated by Covid-19, conventional financial institutions (CeFi) are extremely susceptible to shocks on a worldwide scale. This is due to the fact that personal interaction is the foundation of centralized monetary systems.
According to economist Nariman Behravesh, COVID-19 has resulted in a financial shock three times stronger than that of the 2008 financial crisis.
There may be no requirement for direct human interaction at all to maintain DeFi, and bitcoin markets and firms have been thriving despite the global health crisis.
No Fear Of Loss Games
The DeFi space also has games and lotteries, which are both fun things to do. Lotteries that are called “no-loss” appear to be risk-free. In this kind of lottery, everyone gets their money back, and one lucky person wins all the money that has grown in the shared pot.
All of this is done without middlemen while using smart contracts throughout the DeFi space.
Fundamentals & Essence
DeFi is a rapidly expanding subfield of the cryptocurrency market, and it includes thousands of initiatives spread over numerous blockchains.
With DeFi, traditional financial services can be provided without the involvement of traditional financial institutions like banks or non-banking financial institutions. One of the most notable aspects of DeFi is its ability to do away with middlemen.
It would be helpful to discuss the benefits and drawbacks of DeFi before getting started investing so that novices may make an informed decision.