What is DeFi, decentralized finance and how it works

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La decentralized finance, better known as DeFi, is a recent area whose introduction is linked to the Digital Revolution and the world of cryptocurrencies. It allows users to achieve financial transactions directly, proving to be an attractive alternative to traditional standard procedures. DeFi is a solution appreciated by investors and on the rise rapidly. In this article we tell you more about it.

DeFi Crypto: meaning

The term DeFi stands for decentralized finance: decentralized finance. If you are wondering. what is De-Fi, know that it is nothing transcendental. It is a financial branch that allows users to conduct financial transactions without using an intermediary, according to services that are peer-to-peer, then.

Just because it is decentralized, it does not mean that De-Fi does not ensure that one can take advantage of the classic financial services made available by traditional banks and centralized financial institutions, so that transactions and new products can be realized every day. Solutions that see public blockchain, specifically concerning cryptocurrencies, especially the Ethereum blockchain.

DeFi: why it has become important

The reason why DeFi crypto has become important is because of the very elements behind its operation: the cryptocurrency. Decentralized finance starts with what has been worked out for its operation through blockchain networks, which take over the task that has traditionally been delegated to banks without the costs associated with the traditional system: from the offices, to those of a structure such as the stock exchange, to the very salaries of bankers.

Decentralized finance makes it possible to realize Free, fair, more accessible and open financial markets, in a simple, fast and intuitive way. It is sufficient, in fact, to have an Internet connection.

DeFi is, therefore, one of the innovations born with digitization, one of the phenomena that is rapidly revolutionizing finance. Something that is proving to be as interesting as ever, able to bring multiple benefits to people and open up additional investment opportunities. A major challenge even for classical financial realities.

DeFi: how it works

 The operation of crypto De-Fi starts from Assets that make use of digital wallets through which the smart contract, so as to carry out the transactions. These take place in a digital 100% manner, through specific software called decentralized apps, designed primarily for Ethereum. Other platforms that are experiencing steady uptake include Binance, Solana, and Cardano, which are developing applications not unlike Ethereum.

Decentralized finance provides access to multiple financial services, according to a peer-to-peer mode. In detail:

  • Cryptocurrency loans. The gain is not monthly, on interest rates, but daily.
  • Mortgages. Access is immediate, without any bureaucratic steps through credit institutions.
  • CFD trading. A special form of trading, viz. transactions in which cryptocurrencies are bought/sold, free of a broker's fees.
  • Purchase of resources or tools, to be acquired in the short term as well as in the long term.

Finally, through DeFi crypto you get to have available to you the savings for the future, accessing higher rates than classical ones.

DeFi: advantages and disadvantages

DeFi is a newly introduced system, having originated with digitization. Like any phenomenon, it has advantages and disadvantages. Let's find out more about them!

Benefits

The benefits that DeFi enables are many. Getting more specific:

  • Maximum protection of personal identity. DeFi crypto allows access to a service simply by creating a wallet. To accomplish this task does not prove to be Need to provide any e-mail address, name, or identity personal. The person can, therefore, maintain anonymity without the need to see his or her movements tracked and find himself or herself paying significant commission costs.
  • Transparency of conditions. To be able to carry out transactions, equally and without any hierarchy, are all those who wish to do so. The conditions are clearly spelled out, free from any possibility of misunderstanding.
  • Speed at the highest level in all operations. DeFi's updates are constant and happen quickly, much more so than in traditional stock-type markets.
  • Flexibility assured. Resources can be transferred at any time, with complete autonomy and freedom. Both bureaucratic rigmarole and commissions are absent. Thus, DeFi allows for maximum operational freedom, saving time and even money compared to the services provided by traditional financial solutions.

Disadvantages

The disadvantages of DeFi crypto stem mainly from the fact that. this is a newly introduced service. La volatility of this type of technology is quite high, for this very reason: this is confirmed by the even major fluctuations that cryptocurrencies have been experiencing since their introduction.

In addition, for those who wish to carry out trading operations, it is important to know that they are More delicate mechanisms and higher risk: better to get informed and even educated.

Finally, DeFi is subject to specific tax regulations, differing from state to state. Italy is in the forefront from this point of view, having been among the first countries to address at the legislative level, with obligations and duties. These will have to be integrated with what is established by the EU, which is starting to move concretely just from 2022.

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