Decentralized finance allows people to conduct transactions directly with others rather than through centralized institutions such as banks, using blockchain networks. It eliminates the need for an intermediary, making financial transactions faster, cheaper, and more efficient. Anyone with an internet connection can use Defi, making finance significantly more accessible.
Decentralized Finance vs. Centralized Finance
Payments, loans, and trading activities all travel through third parties and middlemen who are extensively regulated by local regulators, making centralized finance the default financial framework in which the world currently operates. Decentralized finance, on the other hand, offers a slew of benefits by allowing users to transact through financial applications over a blockchain network, bypassing intermediaries like traditional banking organizations. By cutting out the intermediaries, Defi not only saves money and time, but it also makes financial services more accessible.
How does Defi Work?
Decentralized finance uses smart contracts, which eliminate the need for traditional financial institutions to act as guarantors for transactions. Instead, participants in the decentralized finance ecosystem transact directly with one another, and transactions are secured using blockchain technology. Most Defi products do not take custody of your finances, allowing you to keep control of your assets. When using Defi, you use a secure digital wallet to access your funds or assets. When you wish to transact, you can use smart contracts, which require both you and the other party to agree to a set of specified terms.
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