A simple explanation of what is DeFi or Decentralized Finance

in #leofinance16 days ago (edited)

We live in a rapidly changing new world. The past few years have been very beneficial in the positive changes that have taken place in the financial and technological sectors. In the past few months, we have witnessed a big boom in decentralized financial services, DeFi or Decentralized Finance, and we want to help you understand what are the decentralized financial systems DeFi or Decentralized Finance that can help you understand many of the things that are happening and that will happen in global financial systems.

What are DeFi or Decentralized Finance?

The term "DeFi" is an acronym for Decentralized Finance, or Decentralized Finance. In simpler terms, they are standard financial tools that institutions rely on on the basis of Blockchain or decentralized systems in managing, transferring and dealing with everything financial.

Technology, and in particular the Internet, has changed the way we all live today, and it will not be different when this ideology is applied to money, finance, and financial systems.

Traditional “centralized” financing has been controlled by banks and governments for many years. So that we trust them to manage our earned money. They regulate it and invest it based on economic factors and calculations that we are rarely aware of.

The traditional financial system cannot disclose what is happening with our money, so they benefit from the time that our money is in our bank accounts, and our frozen money is there in order to preserve it, and because the current financial awareness has made people question a lot about their money and their wealth, and on They are the first and last factor in global economies. One of the reasons behind the emergence of decentralized financial systems, DeFi or Decentralized Finance, will provide a great starting point in changing the world economy.

Going back to the past to understand DeFi or Decentralized Finance

To better understand DeFi, we must first take a look at how conventional finance came about. Although sometimes it feels like money is always around, this is not the case.

Human transactions began with a barter between goods and goods or services. But as human societies have evolved, so have our economies. We invented currency to make exchange easier and obtain goods and services in exchange for something we agree upon is of value, which led to the emergence of greater productivity and large economic markets.

Historically, central authorities like governments issued the currencies on which our economies were based. It was expected that banks and central institutions would carefully manage and regulate the circulation of currency supply. As the size and complexity of our economies have grown, these central authorities have gained more power as people have more confidence in them.

You trust your government to not ill-print money to stabilize its value. You trust your bank to store your money safely. And when it comes to investing, you trust your assets to a financial advisor. By handing over control of your money to others, hoping to gain profits from your investments and trades. But the sad truth about our current financial system is that the more we trust financial institutions, the more power they have against us.

We often have little knowledge of how companies handle our investments, or even how our governments manage the economy. In most cases, investors receive only a very small percentage of the returns resulting from the risks to our trust from these central authorities.

Centralization has long been a major issue in the financial industry. There are a few corporations and major people maintaining control of the world's money and picking up enormous fortunes at the expense of people's trust in them. Over time, this situation widens inequality and excludes a large portion of the world's population from the current financial system. Nearly 1.7 billion people were not beneficiaries of the financial systems in 2017.

The more we know about the current financial system, the greater the certainty that the current financial system is unable to reduce or accelerate transaction fees, or make those transactions more transparent. Many people lack confidence in central institutions of all kinds. Throughout the world, levels of distrust seem to be increasing day by day.

The mortgage crisis in America raises many questions. A few years later, the Greek crisis, which is still going on, makes people question the suitability of the global financial system to the needs of individuals.

The ongoing Venezuelan hyperinflation has led the Venezuelan people to largely abandon their existing national financial system for the sake of a more decentralized system based on bitcoin.

On November 18, 2019, the Iranian people set fire to the Central Bank of Iran during a protest against the central authorities.

In fact, there is a lot of similar confusion all over the world, to the extent that it is too many that it cannot be mentioned all here, and we will talk about that in future articles so that Arab awareness of the problems raised by the central systems increases.

DeFi or Decentralized Finance is trying to build something different

We aim at decentralized financial systems, DeFi or Decentralized Finance, to create a financial system that is open to everyone that reduces the individual's need for trust and reliance on central authorities, or in other words, on the mediator or third party in all deals and transactions. Technologies such as the Internet, cryptography, and Blockchain provide the tools to create an independent financial system that is collectively controlled without the need for central authorities.

There is a saying circulating among the blockchain communities: "Don't trust, check for yourself." Because with a Blockchain network in place, you as an individual can verify any transaction that takes place on the Blockchain.

DeFi or Decentralized Finance seems to represent a very important shift in our daily life. With 3.9 billion people having access to the Internet and 63.4% accessing the Internet via their phones, the Internet is increasingly available to all parts of the world and to all levels of society.

As big tech giants such as Facebook Pay, Apple Pay, WeChat Pay and Alipay increase access to financial services without first having customers start a relationship with a bank, and through those technology companies now many barriers hinder individuals from Benefiting from financial services is a thing of the past.

DeFi or Decentralized Finance is the next step. Through it, a solution is provided against government oversight, such as monetary manipulation and hyperinflation, in addition to potential corporate oversight in the future, and with the development of blockchain companies and decentralized financial systems, they will inevitably take market share away from banks.

DeFi is an open financial system to the world

DeFi aims to create a financial system that is open to all, that reduces confidence and dependence on currently centralized organizations. The Internet, Blockchain and Crypto provide everything necessary to build independent financial systems controlled by technology and make financial markets accessible to everyone without any intermediary or government oversight. The beauty of the blockchain is that everyone can verify all the financial transactions that occur. Blockchain provides transparency and openness to an independent global financial system.

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