In this series of articles, we will talk about blockchain, and especially about financial applications: how the blockchain disrupts the financial ecosystem.
DeFi – decentralized finance – is a rapidly growing ecosystem of financial applications built on blockchain networks. It aims to provide an open, transparent, and permissionless alternative to traditional financial systems.
In traditional finance, financial intermediaries such as banks, insurance companies, and brokerage firms play a central role in managing and transferring assets. These intermediaries are subject to regulations and have significant control over the financial system.
Smart Contract & Decentralization
In contrast, DeFi applications use smart contracts, which are self-executing programs that run on a blockchain, to automate financial transactions without the need for intermediaries. These smart contracts are open-source and accessible to anyone, enabling a decentralized network of users to interact with each other directly. In other words, DeFi applications run on decentralized networks, allowing users to interact with financial services directly, without the need for a middleman.
Thus, it allows users to retain control of their assets and interact with financial applications without the need for intermediaries. This makes financial services more accessible, transparent, and efficient. DeFi applications also have the potential to reduce costs and increase the speed of transactions, as they operate 24/7 and do not require manual intervention from intermediaries.
To help us better understand finance and decentralized finance, I reached out to Torus Investments, a trading technology company based in Lausanne and Zurich that has established itself as a central player in the crypto markets. The company is a dedicated market maker on several large and centralized exchanges and has expanded its operation to decentralized markets (DeFi) as well.
I have personally worked with them as a specialized web3 developer to help them deploy smart contracts on the ETH blockchain. I will further explore this topic in a series of articles.
DeFi use cases Some of the popular use cases of DeFi include: – Decentralized exchanges (DEXs) – These are platforms that allow users to trade cryptocurrencies without relying on centralized exchanges. According to Torus, “The DeFi sector is offering many opportunities in trading, and we were able to identify several inefficiencies that offer unique return possibilities still available today.”
If you are interested in this subject and want to participate in the growing DeFi sector, Torus Investments offers an in-depth training course on Blockchain and Decentralized Finance, open to private and corporate participants.
DeFi use cases
Some of the popular uses of DeFi include:
- Decentralized exchanges (DEXs) – These are platforms that allow users to trade cryptocurrencies without relying on centralized exchanges.
- Lending and borrowing platforms – These enable users to borrow and lend cryptocurrencies without intermediaries, with interest rates determined by the market rather than centralized institutions.
- Stablecoins – These cryptocurrencies are pegged to the value of a FIAT currency (such as USD or CHF) or commodity (such as gold), providing a stable store of value.
- Prediction markets – These are platforms that enable users to bet on the outcome of real-world events, such as elections or sporting events.
In summary, DeFi represents a new paradigm in finance, offering a decentralized and open alternative to traditional financial systems. By eliminating intermediaries and enabling direct peer-to-peer interactions, DeFi has the potential to increase financial exclusivity, reduce costs, and enhance transparency and efficiency.
Overall, DeFi has the potential to transform the traditional financial system by offering greater transparency, accessibility, and control to users. However, it is still a relatively new concept and faces several challenges, including regulatory uncertainty and scalability issues.
By the same author: Un aperçu de la Finance Décentralisée
Further reading: Introduction à la Blockchain II : Mécanismes de consensus by