Simply put DeFi is decentralized finance, and it means exactly what you think it might, that blockchain can replace banks and the banking system.
- Lending
- DEX (decentralized exchange)
- Derivatives
- Payments
- Assets
What are the Advantages of Defi?
Imagine being able to hold on to your Bitcoin and borrow against it with instant loan approval without any type of credit check or income verification. Now imagine this loan is instantly issued and approved. Now imagine benefiting from your deposit on the backend, just like the big banks do, and earn real interest on loans given out against your deposit. Some DeFi platforms are paying 8-12% APR on your crypto deposits and borrowing against crypto has never been simpler.
What are some benefits of DeFi?
Much more control of your funds and the ability to farm out your loans and deposits to get the best returns and rates.
What are the Risks of Defi?
The biggest risk is a drop in the real fiat value of your staked crypto deposit. If BTC goes from $60,000 back down to $6,000 the smart contract will perform a margin call where the borrower must make a payment big enough to bring the LTV (loan to debt value) back to the 60% range. So besides a crash in crypto, DeFi will probably be the biggest thing the world has ever seen since Pizza.
