DeFi is crypto’s version of Wall Street… let me tell you how…
To send or receive money in the traditional financial (TradFi – crypto term for traditional finance) system you need intermediaries, like banks or stock exchanges
To feel comfortable doing the transaction, all parties need to trust that those intermediaries will act fairly and honestly
In DeFi, those middlemen are replaced by software. Instead of transacting through banks & stock exchanges, people trade directly with one another, with blockchain-based “smart contracts” doing the work of making markets, settling trades & ensuring that the entire process is fair+trustworthy (since it doesn’t depend on any individual from the company or central management team)
DeFi protocols empower users to take control of their crypto holdings with self-custodial software and hardware wallets
As users own their private keys, they always have access to their funds. No one can unfairly suspend asset withdrawals, enabling users to enter or exit a position at any time
DeFi also includes things like lending platforms, prediction markets, options & derivatives
Basically, it is crypto’s version of Wall Street — one that is largely decentralized & deals exclusively in crypto, with crypto versions of many of the products offered by traditional financial firms, & without much of the red tape & regulations that govern the existing financial system
The collapse of the second-largest centralized crypto exchange FTX has asserted how centralized finance (CeFi) is different, & riskier than DeFi
FTX is not the only CeFi platform to have fallen in 2022. Other centralized crypto platforms like Celsius, BlockFi, and Voyager Digital also faced the same fate
The total value locked in DeFi has increased by over 5x since July 2020. Also, the DeFi Market size is expected to reach USD 46.61 billion in 2024 & grow at a CAGR of 10.98% to reach USD 78.47 billion by 2029
But, high-level data suggests that DeFi is here to stay, As always, DYOR before investing in any cryptocurrency & you’ll be fine.
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