Understanding DeFi: background and operating features | Idealogic

What DeFi is and how it works

The origins of DeFi and its purpose

The benefits and drawbacks of Decentralized Finance

  • Programmability: Once all parties agree on the terms a smart contract is automatically generated. As all the processes are based on codes and technology, no other traditional institutions are required, thus innovative financial instruments and assets are becoming cheaper and more appealing to users.
  • Transparency: All transactions on Etherum are open to the public and are available to be audited and tracked at any moment. In fact, you can also find a code DeFi protocols are programed on, analyze it and come up with something new on your own.
  • Management of your finances: Users are in charge of their assets, decide what to do with the investments and loans without intermediaries, and have control over their personal information.
  • Permissionless: The requirements that DeFi asks of its users are quite different than that of traditional banks. DeFi is an open ecosystem that doesn’t look into things like your annual income or location. All you need to start working with decentralized finance is a gadget with a good internet connection.
  • Interest rates for investors: With DeFi you can generate income by using such programs as Aave that allows you to lend deposited assets to borrowers and earn money from the percentage paid by them.
  • Immutability: As smart contracts are built on codes, it is impossible to augment or manipulate a smart contract while it is being created. This increases the security level of the system.

Summary

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