Thanks for watching our video entitled What Is DeFi? Cryptocurrency Decentralized Finance Explained In Under 4 Minutes! Discover Staking & Liquidity Pools Tutorials In Next Video
Start your generating passive yield today at https://weave.financial/
Join Weave social communities here – https://linktr.ee/WeaveFinancial
Don’t forget to subscribe! – https://www.youtube.com/channel/UCb4I…
DeFi includes many blockchains that support smart contracts such as Ethereum, Binance Smart Chain, Polygon (Matic), Cardano, Moonbeam, Avalanche, Algorand, Polkadot. It is decentralized, meaning that funds can be sent peer to peer and individuals can become the banks and payment processors. Types of defi include staking, liquidity pools (LPs) and more.
It is very different from CeFi (centralized finance) where major institutions control monetary policy, distribution and systems of transfer. Find out more in this short tutorial video.
Full video captions are below;
What is Defi?
DeFi stands for Decentralized Finance.
Decentralized Finance is a permissionless system for trading money and risk on the internet. Decentralized finance institutions are generally called “protocols.” Protocols enable the exchange of money, loans, tokens, and investments without middlemen. How does it accomplish this? Let’s break this down and explain how Finance and Decentralization can come together to create something with very exciting possibilities.
So first of all, What is Finance? Finance is defined as the transmission of money and risk. Banks are a great example. In exchange for giving a borrower a mortgage, they accept the credit risk of the individual. They exchange money now (the mortgage principal) in exchange for risk (future interest rate payments). Looking closely at the word risk, risk is defined in financial terms as the chance that an investment’s actual gains will differ from an expected outcome or return. Risk includes the possibility of losing some or all of an original investment.
Decentralized means DeFi reduces reliance on trusted third parties, such as banks. Instead, decentralized finance is built on top of smart contract blockchains. Blockchains follow publicly published rules and store redundant data so there is no possibility of double spending money. In DeFi, transactions generally occur between individual users and pools of investors. The pools of investors will function in some way like a financial entity, enabling trading or loans to occur.
Defi is also permissionless. Permissionless means there are no barriers to entry built into the system. There is an equal treatment of everyone on the blockchain, as identity does not matter. While it is permissionless, it comes with significant transaction costs. Blockchains collect fees to process transactions, and defi protocols also collect fees for their services.
Why choose decentralized finance?
Decentralized Finance generally offers users better rates and terms than traditional banks and brokerages. However, because it is the direct exchange of money and risk, risk is significantly higher in defi than in traditional finance. Transactions are generally irreversible and losses are permanent. Another reason to choose DeFi is that it’s accessible from anywhere with an internet connection. Opportunities are global.
The returns and yields of Decentralized Finance can be high. This comes with the understanding that money is not free- it comes with the acceptance of risk. Users of DeFi become the banks and brokerages, claiming the big risks and big rewards for themselves. We hope you enjoyed this short explanation of what is defi.
Start your generating passive yield today at https://weave.financial/
Join Weave social communities here – https://linktr.ee/WeaveFinancial
Don’t forget to subscribe! – https://www.youtube.com/channel/UCb4I…