What is DeFi?

what is defi decentralized finance

By Wilton Zigler

If you’re a retail trader or an institutional investor, you may already know DeFi’s meaning in crypto: it’s a blockchain-based form of finance that doesn’t rely on central financial intermediaries. However, if you’re new to the space, DeFi may sound like jargon. But don’t fret, it’s not as complicated as it sounds. Overall, it’s important to know the protocols when investing into projects.

DeFi revolves around decentralized applications or dApps. This allows the financial functions on the blockchain, Bitcoin being the first to popularize that technology, in return expanding the evolution. Decentralized finance examples include saving plans, insurance, and loans.

Here’s a simple answer to the question “What is decentralized finance?”: DeFi is the internet for money. You are in control to send and receive cryptocurrency anywhere in the world at a cheaper, faster rate with a host of opportunities to compound your wealth opposed to a central authority from the common bank that is far more limited with more fees.

The Basics

Terms like Crypto DeFi and BitCoin DeFi all point back to this same concept of a collective user base in command of financial workflows, instead of a provider like a bank taking control, CNBC explains. If you’re HODLing crypto and want to loan it out, or are looking for a loan yourself, you now have more options than asking a suit at a traditional bank.
If you’re wondering how to invest in DeFi, you can trade tokens connected to DeFi networks, applications, and protocols, TheStreet says. We’ll go deeper on other opportunities to earn, like staking and lending, later on.

Security

One of the many perks of DeFi is security, each account has protection from lawlessness activity unlike a centralized exchange that stores your coins in a wallet they own that is more susceptible to risk of being hacked, just like a regular bank. In a decentralized exchange each customer has their own wallet, and trades are done on a peer-to-peer basis via smart contracts. Additionally, there isn’t a central target when a decentralized exchange is breached.

Generate Income

If you’re wondering what decentralized finance is, you’re probably looking for more than just a straight definition. You want to learn how you can use your assets to fuel opportunities for further gains and seize the opportunity. Earning passive income in cryptocurrencies is becoming more popular as the space evolves.

Here are a couple examples of how an individual can generate income by owning a token native to the blockchain:

Staking

Staking can be achieved through locking your invested token to earn more of that token in return through smart contract technology.

Is it really so simple? For the user, staking in crypto DeFi can definitely be that easy. All that is needed is capital and patience. Proof-of-Stake blockchains depend on users locking in their tokens into smart contracts for a specified period to earn rewards for contributing to the ecosystem.

Lending

Lending interest rates on traditional centralized services like a regular bank are low or near to zero. Having your assets sit in rates that low will surely have you disappointed to find that your capital hasn’t appreciated much or at all for that matter. Decentralized Finance gives you a better alternative. Crypto DeFi platforms pay their users an APY (annual percentage yield) for storing their assets into a smart contract. Borrowers then utilize the token and pay an interest in return to the lender. Because the entire lending protocol is governed by smart contracts, there is no risk of the borrower failing to repay their debt. Therefore, you should always be able to withdraw your tokens at any time.

What DeFi platform to consider?

Shifting our focus from CeFi (centralized finance) to DeFi, Pokket Finance will soon be offering many new ways to earn income with a large variety of tokens. Staking Ethereum and stablecoins will allow stakers to earn Pokket token (PKKT). PKKT will act as the governance token, giving holders the voting power to influence the direction and characteristics of the DeFi protocol.

PKKT will be used to earn more interest on Pokket DeFi and CeFi platforms. Out of 92 tokens listed on Pokket.com, 16 have a 4-digit APY, 63 have 3 digits, and 13 have 2 digits returns. 

DeFi is opening new options for individuals to grow their wealth in a way that wasn’t attainable through traditional financial services.