Abstract
Research background:Its simplest form, decentralized finance is a system by which financial products become available on a public decentralized blockchain network, making them open to anyone to use, rather than going through middlemen like banks or brokerages. Unlike a bank or brokerage account, a government-issued ID, Social Security number, or proof of address are not necessary to use DeFi.Purpose of the article:The aim of the contribution is more specifically, DeFi refers to a system by which software written on blockchains makes it possible for buyers, sellers, lenders, and borrowers to interact peer to peer or with a strictly software-based middleman rather than a company or institution facilitating a transaction.Methods:Multiple technologies and protocols are used to achieve the goal of decentralization. For example, a decentralized system can consist of a mix of open-source technologies, blockchain, and proprietary software. Smart contracts that automate agreement terms between buyers and sellers or lenders and borrowers make these financial products possible. Regardless of the technology or platform used, DeFi systems are designed to remove intermediaries between transacting parties.Findings & Value added:The article provides an overview of decentralized finance (DeFi) solutions that have already proved they are better alternatives to traditional finance. With DeFi, users can take advantage of lower transaction rates, higher interest rates or an opportunity to diversify investments.
Highlights
The use of technology in financial services is not new
We focus on permissionless blockchains and their applications in decentralized finance
The total value locked in decentralized finance (DeFi) contracts is more than $41 billion, as of March 2021
Summary
The use of technology in financial services is not new. Most transactions at banks or other financial services companies are accomplished with the help of technology nowadays. Economic prosperity or hardship radiate outward from hubs to spokes and toward the rest of the global economy This model of interdependency is repeated in the functioning of global financial services corporations. The sprawl of their operations means that the organization itself is subject to a phalanx of laws and regulations in each of its financial jurisdictions Their reach has made such institutions systemically important to maintain the global economy’s balance and necessary to maintain or create new financial services infrastructure. Though this model worked well in the last century, the financial crisis and, subsequently, the Great Recession, revealed the flaw in this architecture. DeFi applications provide users with more control over their money through personal wallets and trading services that explicitly cater to individual users instead of institutions
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