Defi : Revolution in Financial Services

Financial services are commercial services offered by the banking sector, encompassing a wide variety of money-management industries, including credit unions, banks, credit card providers, insurance companies, accounting firms, consumer finance companies, stock brokerages, hedge trusts, individual managers and several government-sponsored companies.

Central authorities issue a daily currency that powers our economy and is used by all trades, such as government and banks. Consequently, they have the power to monitor and regulate the flow and supply of such currencies on the market. We also give over ownership of our savings to numerous financial entities, such as banks, in hopes of better returns. The concern with this is that because all management and the fund are centralized, the danger is also at the core. Centralized finance; there is trust in a corporation or organization.

Defi also called as Decentralized Finance. Digital currencies, protocols, smart contracts and dApps built on a network are part of Decentralized Finance. The Ethereum platform is the primary option for the DeFi application, given the simplicity and the amount of growth. In protocol, there is trust. Trust is greater in mathematics than faith in false beliefs.

Defi provides you with control of your own assets. Although many new-age banks and Fintech businesses are committed to providing customers with more access, you trust them to handle their assets. The aim of Defi, because of decentralization and blockchain technologies, is to ensure complete ownership of your properties. Many financial software developers often use open-source exchange protocols through decentralized trade. All can safely store, exchange, and investment in their savings and gain much greater profits than the conventional financial system. You have full leverage of your finances, and there are no intermediaries to handle your assets.

If we summarise then; anyone with an internet connection and crypto wallet can now access a plethora of financial services.

Types of risks of DeFi =>

  1. Financial Risks : Investors usually use statistical statistics and indicators such as the average inflation of their native currency and the risk-free rate of return to measure investment prospects. The risk-free rate refers to how much an investor can expect from an investment delivering the nearest thing to a guaranteed return as possible. The absence of detailed historical evidence and benchmarks makes it impossible to determine the probability of investment in DeFi in conventional terms.
  2. Procedural Risks : Procedural protection recognizes that consumers should take measures to secure their properties. Developers may make their apps as secure as possible, but certain security features rely on users taking certain precautions, such as multi-factor authentication and hardware wallets. Best practices for storing or using cryptocurrencies include: non-disclosing deposits, separating ‘savings’ funds to be stored in cold storage using ‘on-the-go’ paper or hardware wallets held in a smartphone, browser, or other more open forms of wallets, using multi-factor authentication.
  3. Technical Risks : This involves bugs arising from the possible hardware and software malfunction required for an application to operate.
    Smart contract vulnerability faces a comparatively high risk since smart contracts are relatively modern innovations and that best practices for auditing them exist in their infancy.

Centralized Exchanges ;

  1. Carry Custodial risk.
  2. Our financial information is shared.
  3. They will lend out our funds .

Decentralised Exchanges ;

  1. Minimal custodial risk.
  2. Our data stays private.
  3. We are in control of our funds .
  4. (Eg; KyberSwap etc.)

Centralized Stablecoins ;

  1. There is trusted custodian needed.
  2. Undercollateralized.
  3. Also fake market volume is there.
  4. (As we have seen in the Tether scams. )

Decentralized Stablecoins ;

  1. Minimal custodial risk.
  2. High Transparency.
  3. Provides real solutions for hyperinflation.
  4. Stability of value in the market.

Some Real life use cases are=>

  1. ABRA – A cryptocurrency wallet that uses the Bitcoin blockchain to keep and track deposits held in various currencies.
  2. Hapoalim – a partnership between the Israeli bank and Microsoft to set up a blockchain infrastructure to handle bank guarantees.
  3. Maersk – The shipping and transport consortium has announced proposals for a blockchain solution to streamline maritime insurance.
  4. Aeternity – Enables the formation of smart contracts that become operational when the network agreement decides that conditions have been met – enabling electronic transfers to be made when the parties accept, for example, that conditions have been met.
  5. Augur – Enables the development of blockchain-based forecasting markets for the trade of derivatives and other financial instruments in a decentralised environment.

Hope you like it.

My #28 Article.

Hoping for a positive response.


Defi : Revolution in Financial Services was originally published in Data Driven Investor on Medium, where people are continuing the conversation by highlighting and responding to this story.