DeFi exchange: pros and cons

Recently, several new projects came to DeFi’s market. That’s the reason why more and more people decide to step in and earn, diving into a relatively new sphere. To avoid any difficulties, it’s great learning everything in advance, including what DeFi is, how it works, what’s the difference between DeFi and CeFi, etc. Our guide will provide you with all the essential information – just read carefully, and let’s get started!

What is DeFi?

What is DeFi?

As you probably know, or might understand from above, DeFi is a financial service provided by public blockchains, including Ethereum. DeFi, or decentralized finance, operates like ordinary financial institutions, only without regulatory authorities, the management of such finance is automatic – at the expense of code.

If you want to borrow money, trade decentralized finance instruments, insure your cryptocurrency investments, and make a profit from them – all this is done with the help of DeFi with blockchain technology.

However, unlike trading in ordinary financial assets, DeFi trading will not require the participation of a third party or documentary evidence of the agreement. Thanks to blockchain technology and the DeFi concept, cryptocurrency settlements are made directly between the parties to the financial relationship and do not require routing involving a centralized system.

DeFi blockchain technology

Pros

Real-time financial transactions distinguish DeFi from fiat money. Upon completion of the transaction, the base blockchain is updated, as well as interest rates – several times a minute.

DeFi provides free access to services if you have a cryptocurrency wallet and an Internet connection, regardless of location and other personal characteristics of the user. In this way, asset transfer transactions become more accessible: however, instead of paying a fee and waiting for a bank transfer, other cryptocurrency-related deductions and tests await users.

Most DeFi traffic is made up of Ethereum operations. Their transparency is guaranteed, because it is checked by other users of the network. In this case, any user can later view network activity.

Open source DeFi protocols are available for viewing and development. Based on open source technology, DeFi programs can be easily, without additional permission, connected in unlimited quantities to create new financial products and services.

With smart contracts programmed for automatic execution based on an infinite number of variables, as well as crypto-wallets, DeFi users conveniently and easily save money and manage their assets.

The blockchain architecture protects DeFi data from unauthorized access and provides an audit of relevant transactions.

Cons

DeFi technology is still new and needs to be tested, making decentralized finance a risky and therefore lucrative business. However, despite the high reward, we should not forget that failures of DeFi platforms can be costly to users.

Anonymity is an integral advantage of DeFi tools, but it has disadvantages for protecting users’ property rights: compensation for lost funds due to technology failures is not provided by any regulator and is not covered by any backup system.

DeFi has a vulnerable architecture to hacking attacks, which makes decentralized finance technology more attractive to hack than traditional online transactions.

Pledge requirements make DeFi loans difficult to obtain, as collateral for this type of loan often exceeds the cost of the loan. This limits the potential consumers of relevant financial instruments.

Private investors – both individual and institutional – use wallets to store cryptocurrency assets, requiring private key protection in several signatures, which are long unique codes known only to wallet owners. That is, having lost the key, the investor loses with it access to funds, protected, as required, by DeFi.

Decentralized technologies

Today, the processes of exchange, creation, and transmission of information, as well as cost transformation in financial instruments and derivatives are controlled by algorithms and decentralized computer programs. The financial industry is changing rapidly, and DeFi technology is updating it. Experts are already talking about this as the creation of a new infrastructure aimed at an integrated exchange of values.

CeFi vs DeFi

CeFi vs DeFi

In the case of CeFi’s (centralized finance) the system is regulated, while in the case of DeFis – no. In the first case, exchanges are responsible for protecting the funds placed on them by users. In the second – users place funds at their own risk. Centralized finance can limit users’ disposal of funds, as well as prevent the trade in valuables, while decentralized financing eliminates such things. CeFi monitors transactions that support interchain exchange for compatible cryptocurrencies and convert fiat money into cryptocurrency (and vice versa).

Major players

There are several promising players in the DeFi market that are worth to be mentioned here as an example of the best opportunities offered by the technology.

Colony Lab

Colony Lab

Colony Lab is run by a public organization dedicated to supporting the Avalanche Foundation.

Colony’s smart contract base provides the basis for the organization’s financial and other functions. Working with its own tokens (they can be identified by a ticker symbol), this project serves its purposes and property.

The colony supports wallets that move users to use tokens. Such operations require a commission.

The fund operates various services, including the Decentralized Exchange (DEX). Invest, or borrow your own assets, and earn interest. All you need is a boring wallet with DeFi protocols.

Aave

Aave

Aave is a cryptocurrency loan oriented, a decentralized financial platform built on the Ethereum blockchain. Users of the platform within the created crypto pool, with the help of smart contracts provide peer-to-peer lending. Borrow a crypto and get interested, or get the capital you need. Algorithms for processing transactions help you, as well as a computer network operated by Aave. Diversify your risks before giving more money to traditional credit institutions than they are worth.

Fantom

Fantom

Fantom is an open source platform for simplifying transactions with digital assets (trade, loans, cash) through smart contracts. It is known for being one of the first to speed up the processing of transactions with Ethereum at a lower cost. To start earning on this platform, you just need to deposit tokens by gaining access to a digital wallet.

More reliable platforms for token earnings can be found here. To choose the optimal platform, pay attention to the choice of coins and the size of the commission. For starters, the intuitive interface of the platform will also be an advantage.

Future of DeFi

Future of DeFi

Meanwhile, DeFi uses decentralized technology in current investment, and transactional areas protect digital assets and confirm ownership. All this has been made possible through peer-to-peer communication, which precludes the use of centralized supervision by authorized stakeholders over the development of public relations regarding digital values. Despite the anonymity of financial transactions, unregulated cryptocurrency trading, and spice with the latest financial instruments of the latter two are hampering the further increase in the value of the decentralized technology market, market scaling continues to grow rapidly.

How to exchange in DeFi 

How to exchange in DeFi? You can conveniently do it with Droidex – a smart DEX aggregator that offers its users the most affordable rates among its competitors with top trading efficiency. To do this, follow the steps below accurately:

  1. First of all, you need to visit Droidex’s official website and click “Start Swap”.
smart dex aggregator
  1. Once you’ve done it, for example, choose Polygon Blockchain.
polygon blockchain
  1. Then, select tokens – for instance, AAVE and ADDY.
swap aave
  1. Enter the number of tokens – let it be 5000. Next, press “Connect Wallet”.
connect wallet
  1. After that, connect the wallet – for example, MetaMask.
connect metamask
  1. Then, tap “Swap”.
swap aave
  1. Finally, click “Confirm Swap”.
confirm aave swap
  1. That’s it! Get your tokens!
Get your tokens

Conclusion

decentralized finance

Decentralized Finance (DeFi) is a term that covers cryptocurrency transactions taking place without the participation of financial intermediaries (brokers, banks, etc.).

Currently, DeFi implements some of the core services of financial institutions and FinTech clusters, including lending, as well as interest placement and asset trading.

By building a positive customer experience in decentralizing finances, DeFi is implementing an alternative approach to these services, so for those who have long looked at such tools, it creates a competitive advantage in the asset market.

The DeFi List can give you even more tips on how to approach decentralized technologies to succeed financially, but you can stick to TOP-3 major players in the sphere from above to make a step in this direction as well. These selected projects are subject to community-driven protocols, which makes them reliable. Experts expect that shortly, they will change the infrastructure of the financial sector due to existing liquidity pools and industry intermediaries. You have simply to use our instructions to exchange in DeFi and to start using it for generating personal profit.