What is decentralised finance (DeFi) and how is it different from traditional finance?

in Project HOPE4 months ago (edited)

I must start by thanking @vlemon and @culgin for this opportunity to bring a contest on such an important topic today. I invite everyone to participate, it is not necessary to be an expert, neither am I, but I guarantee that just by checking the page defiprime.com you will get a good idea of what this is about, and you will agree with me that it is a contextualised topic that concerns us all.

The question for participation is:

What is DeFi and how is it different from traditional finance?


Edited imageSource

It seems logical to me, in order to establish a difference with what we consider traditional finances, to start by defining them, don't you think?, so let's have a simple concept and let's have some examples as well:

”Finance is defined as the management of money and includes activities such as investing, borrowing, lending, budgeting, saving, and forecasting. There are three main types of finance: personal, corporate, and public/government.” Fuente

To make it simple to understand. Traditional finance is represented by the way our money has been managed for decades, that is through centralized banks, in which we deposit our money and they take care of "guarding it", that is why they charge us, also for making transactions they charge us. The truth is that this money is used by them for other projects, they practically use our money (and everyone else's) to make more money from loans, investments, etc. I am sure that if everyone in the bank decides to take out their money completely, these institutions would not be able to give everyone what they have on deposit. Besides, they could not serve everyone, because even though the bank network is quite large, there is not enough room for everyone. In fact, there is a large percentage of the world's population that does not have access to these banks.

Is that clear? I hope so.

But with the advent of blockchain technology and crypto-currency, all this traditional finance has been coupled with this new technology that gives us some characteristics that traditional finance does not enjoy, let's start with the following, a point very important:


As I said earlier, banks as we know them today are centralised institutions, this on the one hand can make for optimal functioning in terms of decision-making, of course, but the reality is that it is not just that, but that it is to meet a growing demand, which is global and the banking and financial infrastructure as we know it is totally insufficient.

With the use of the blockchain this obstacle is overcome, since it is now evident that it is a global technology that is scalable and this is improving every day allowing up to hundreds of thousands of transactions per day to be carried out, at a really low cost or even without cost, very quickly, and without space limits.

This already makes a big difference between both, don't you think?

This platform is an example of this, we are not charged for the transfers and they can be made from one wallet to another in a matter of seconds. And the best thing: Without any intermediary.

Something very important that together with the Ethereum Blockchain came up was the INTELLIGENT CONTRACT. This eliminates once and for all the need of an intermediary, since it is a Software that is programmed to be executed only when the conditions previously established are met, that is why it is intelligent, programmed, the possibilities of error are very few, almost none.

This makes it possible to create many applications and protocols based on this technology, of which there are already many. <If you want to know a little more about Smart Contracts I invite you to visit this publication that I titled Do you have any idea what a Smart Contract is? that I made about this topic.

Having clarified the previous points, which I consider very necessary to understand what the main point of this post is, now if we define it as DeFi.

"DeFi is the abbreviation of decentralized finance that includes digital assets, protocols, intelligent contracts and dApps built in blockchain. We can think of DeFi as an open financial ecosystem where various financial tools and services can be built in a decentralized way. " Source

In this way, intermediaries are left behind and the interaction is directly with the platform. Just like in Hive, where we can, without the need of anyone, make the transactions we want to make. Take the power away from those centralized institutions and facilitate processes, losing less on the way with interests, commissions, fees, among other things.

The reality is that there are already tools to manage assets, analysis services, KYC (Know Your Customer) among many other things. An impressive number of platforms of this type, in the context of DeFi that offer the same services we have in traditional finance, such as loans. But as previously said, without intermediaries, in a public blockchain, where it is not possible to modify what is registered in it.

In short, everything is profit in this new type of finance, at least as far as I'm concerned.

I hope I've been clear enough and left a good view on it.

Thank you so much for the opportunity @vlemon and @culgin to present this contest to everyone. Here I leave the link, I invite you to participate in this community contest Defi Campus



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Great and easily understandable post about DeFi... Thanks for creating it!

In my opinion, DeFi can be the main trigger for possible "altcoin season" in the near future... We will see...

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Thank you very much for your support, a compliment to be mentioned by you in your Daily Curatorial Report. Thank you very much @ph11002
I also believe that DeFi will be the target of many controversies, especially for those who are not interested in these changes, but they are inevitable.
It's great that gif ha,ha, ha

I also believe that DeFi will be the target of many controversies, especially for those who are not interested in these changes, but they are inevitable.

Oh, my... you are right about this... it will shake some asses up there... But, I'm not afraid for them... They will find a way to use this for their own profit...

On the other side, we need to keep some of these "freedoms" for "the rest of us"

Yeah, man, that's right, the big boys will always find a way to stay on top...
But, we must educate ourselves and see how to put the system to work for us... and if we can't, it will be to know it very well so that it is beneficial.

Great entry to the contest! I love how you started off by defining Finance and then Decentralization. I am just slightly concerned about you saying this,

In short, everything is profit in this new type of finance, at least as far as I'm concerned.

I think it might be dangerous to assume DeFi = profits. Don't you think?

There are plenty of risks especially when DeFi is still at its infancy.

Overall, this is a great post!

Hello @defi.campus

Yes, it may sound a bit exaggerated to say that everything is profit, because in doing so, the word "profit" is surely related to money. But I am more referring to the possibility of eliminating that dependence on a central bank, to the fact that it is available 24 hours a day/7 days a week, to the fact that it probably helps to make cryptomoney (altcoin) more known.

But it is not only about what money is made, although, if you are right, you can understand it like that.

Thanks for the observation.

Got it. Thanks for the clarification!

You are going to beat me only because I don't have time to write a good article, and I I found out very late about this contest hahahahaha. Very good post, you have a lot of chance to win, and in fact I think you will and Defi's proposal is actually very interesting, they have banks with interest in crypto, which is very interesting to me.

Thanks for your comment @reinaldoverdu
Yes, by participating we all hope to win he he
I hope it will be so, but, maybe just having discovered some new things. some I didn't know, I'm already winning.
Too bad you couldn't realize it before this contest, you would have brought some new things to the game.

@tipu curate

Upvoted 👌 (Mana: 12/18)

I used the same approach in my entry in that of breaking down the fundamentals of DeFi. Allow me to say that I love your use of intelligent contracts. I often take the idea of smart contracts and programmable money and tell people stories of us all one day have crypto avatars.

Ok, I'll visit your post, I find it interesting to read other approaches, I'm sure I'll discover new things. Thank you very much.

The truth is that common people, who are only used to traditional things, are difficult to break with, they are usually distrustful, but they will have to get used to it.

I'll visit you.


Con el apoyo de la familia.

Muchas gracias @topfivefamily por el apoyo.

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Dear @josevas217

Solid summary what DeFi is about. It seem that there is much hype around DeFi those days. Just like there was so much hype and hopes around STO in 2019. Wouldn't you agree?

One can only hope, that this time around there will be more to that than just a short term hype.

Enjoy your weekend, upvoted already.
Yours, Piotr

Yes, I particularly think they're still looking for a way to give cryptology a legal framework. Maybe the STOs were an attempt at that, which didn't materialize. Even this whole blockchain and crypto thing is pretty new. There's still a way to go. Let's hope this DeFi thing continues to move forward, and more things will come to fruition.
Thanks for the support, friend @crypto.piotr