A combination of ‘decentralized’ and ‘finance’, DeFi has caught quite a lot of attention among those in the world of blockchain and web3. Bitcoin and all the other blokchain that came after and succeeded it in many ways have always had one goal: to use cryptocurrency as a means of decentralizing currency. However, decentralized finance (DeFi) is looking for ways to go even beyond that. Not only does it aim to decentralize currency, but it also does the same for trading, lending, remittances, borrowing, and many other services found in traditional finance (TradFi), such as banks, unions, and other legacy institutions.
Decentralized finance apps are usually confused with financial technology apps such as Robinhood, PayPal, Revolut, Venmo), which are in fact more closely related to TradFi than DeFi. Using blockchain protocols, decentralized apps (dApps) take these services and decentralize and simply them for those who value privacy above all else. Now let’s have a look at the pros and cons of this alternative blockchain based economic ecosystem.
Advantages
One of the main advantages of DeFi is that it is permissionless, meaning users are allowed to engage with it without having to ask for permission to send online payments, remittances, and get loans. With banks or FinTech apps on the other hand, things are different as users need permission from them in order to access each of these services. Depending on the service you want to use, you may have to go through know your customer (KYC) procedures, provide personal info, or evidence that your credit history and finances meet the requirements to receive a loan. With DeFi, these services are accessible to literally anyone thanks to its permission less nature.
Disadvantages
Although they cannot be referred to as disadvantages, and despite the fact that they are actually quite beneficial advantages, some consider the aforementioned features as flaws. The fact is that DeFi gives you the opportunity to be largely in control of your finances, which naturally comes with its own risks and the need for more personal responsibility.
Having said that, there are a few minor weaknesses that can be addressed. Decentralized applications (dApps) often fail to provide the easy and simple user experience of FinTech apps and financial products, and in some cases, may not be as good as them in terms of intuitive user interfaces. This can sometimes discourage newcomers from using DeFi products, but its advantages are definitely significant enough to outweigh these minor weaknesses, which will hopefully improve in the future.
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