Decentralized finance, another concept for the future

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Decentralized finance, another concept for the future

  • Decentralized Finance (DeFi) is essentially conventional financial tools built on a blockchain.
  • They are designed to confer significant advantages when operating on the public blockchain, avoiding censorship and having better access to financial services.
  • Many DeFi applications offer hybrid digital assets and traditional financial services.

The decentralized finance (DIFS) have been making noise in the last time after rising platforms and products they offer their services. Lending protocols, security tokens, derivatives, exchanges, and more is the landscape that Ethereum's DeFi is developing. But what will this concept bring in the future? What is it about?

DeFi is essentially conventional financial tools built on a blockchain, specifically Ethereum. They are primarily based on open source protocols or modular frameworks for creating and issuing digital assets and are designed to confer notable advantages when operating on public blockchain, avoiding censorship and having better access to financial services. Decentralizing everything is not a prudent move, and many DeFi apps take it into account by offering hybrid digital assets and traditional financial services, like BlockFi . 

An alternative term that more encompasses the continued focus on financial products is open finance, in which an ecosystem of integrated digital assets, blockchain and open protocols compliment conventional financial structures. The surprising change in Ethereum's application narrative has coincided with the huge popularity of open financial tools in products. For example, a recent Bloqboard report on open lending protocols highlighted that outstanding active loans from four open lending protocols (MakerDAO, Dharma, dYdX, and Compound Finance) increased 1,200% in 2018 to reach 72 million Dollars.

The main open financial sectors in Ethereum are: open lending protocols, issuance and investment platforms, prediction markets, open exchanges and markets, and stablecoins. All will be analyzed below

Open loan protocols

Open lending protocols have probably gotten more recent attention than any other open finance category on Ethereum. E n largely due to the meteoric rise in the use of cryptocurrency Dai and other P2P protocols such as Dharma, and designs liquidity groups such as Compound Finance. Open and decentralized loans offer numerous advantages over traditional credit structures.

Some of them are instant settlement of transactions and new methods of secured loans; there is no credit check, which means broader access to people who cannot get into traditional services, and standardization and interoperability.

Secured loans using open protocols like MakerDAO and Dharma are designed to rely on the trust minimization that Ethereum offers to reduce counterparty risk without requiring a middleman. This is achieved through the basic cryptographic verification methods that are prevalent in public blockchains. 

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