Since the 2009 launch of Bitcoin, cryptocurrencies have been a popular form of decentralized finance. Every Bitcoin transaction serves as an act of decentralized finance due to the Bitcoin network being decentralized. While various cryptocurrencies along with Bitcoin have completely transformed money itself, crypto lending platforms are gradually changing the way we borrow money and earn asset interest.


What does ‘DeFi’ mean?


Decentralized Finance (DeFi) refers to peer-to-peer money services that one would typically use a centralized financial institution, such as a bank, to accomplish. It essentially merges traditional bank services with decentralized technologies like blockchain. DeFi also goes by the name ‘Open Finance’ because of its inclusive format. The DeFi community often seeks to develop alternatives for every financial service available. Such services include various items like loans, savings and checking accounts, insurance, and asset trading, among others.


DeFi plays a big role in the financial sector’s continuing evolution. For instance, DeFi broadens the functionality and the overall reach of money. All you need to participate in DeFi is a smartphone, so there is evident potential for global economic expansion. Therefore, analysts claim this sector is among the most significant that is currently developing in the crypto space.


Exchange platforms


Many consider decentralized exchanges to be the next logical step in the expansion of the crypto space. These peer-to-peer trading platforms give users tighter security, additional flexibility, and a more streamlined UX.


There are two key groups of decentralized finance platforms: truly decentralized and semi-centralized. Truly decentralized means that the whole platform runs on blockchain technology and smart contracts. Semi-centralized means that they sometimes utilize smart contracts and use blockchain systems to an extent, but they mainly operate like regular companies.


Conventional exchanges function through a centralized organization that oversees and approves all of the platform’s trades. This approach presents a problem, and that is it leaves many attack vectors vulnerable. Hackers can easily target the exchange and steal millions. Doing a quick Google search will prove that there is no shortage of exchange hacks where the central organization experienced huge losses. For the most part, these firms had no choice but to cease operations due to the losses.


Decentralized exchanges effectively eliminate most of these concerns. When an asset is exchanged via a decentralized trading platform, the exchange will never directly hold the assets. Smart contracts are instead used to permit a wallet-to-wallet swap. With this method, there is no primary weakness point within the platform that is exploitable to a hacker.


What the future holds


DeFi has evolved and will continue to evolve in years to come. Because of this, we will undoubtedly start seeing decentralized systems try to make these services as strong as brick-and-mortar variants. In the end, anyone with an Internet connection can access these services, which means anyone can buy and loan crypto.