Defi: what decentralized finance is and how it works

Today, technology is an integral part of financial services and they can no longer do without it. However, this mixture poses innumerable problems deriving from the standards to be adopted, from the various regulations and from competing for financial markets.

These issues have been addressed by Defi, which uses cryptocurrency and blockchain Cardano DEX technology to manage financial transactions outside the control of traditional financial institutions such as banks, brokerage firms and government-run exchanges.

In other words, the goal of decentralized finance is to make traditional finance services accessible to as many people as possible through decentralized computer networks, totally or partially eliminating the intermediary between the financial product and the user.

The Origins of Defi is one of the first to realize this need was MakerDAO, which decided to launch a platform that would help users to lend or borrow money in virtual currencies, without the need for an intermediary.Built on the Ethereum (or ETH) blockchain, it consists of a smart contract and two cryptocurrencies.

Strong and weak Defi

Decentralized finance allows you to partially (weak Defi) or totally (strong Defi) eliminate intermediaries. The first relies on traditional peer-to-peer platforms, while the second uses Distributed Ledger technologies.

Distributed Ledger refers to a set of archives that have the same data records, subject to maintenance and control through a complex of computer servers, called nodes.

Decentralized applications

The main purpose of decentralized finance is the ability to createdecentralized applicationsthat target end-users, offering financial products accessible to anyone and setting interest rates automatically based on supply and demand. The only tool they need is a wallet containing crypto or token.

These decentralized applications have some characteristics in common that make them perfect for this type of product, among which we can mention:

globality: anyone with an Internet connection can access it;

insurability: they cannot be changed over time;

interoperability: they can be connected;

without authorization (permissionless): they can be created and used by anyone;

transparency: their code is intrinsically visible to anyone.

Smart contract

Smart contracts are generated by an automated computer program, which automates an action when certain requirements occur. The goal of the smart contract is to make it possible to carry out all types of transactions, mostly financial.

These are few details regarding decentralised finance and its working and it is very important to understand it clearly.

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