Bitcoin was introduced in 2009 and it introduced a strong technology called blockchain. This technology and the world of cryptocurrency have many areas where companies and projects make solutions for different needs.

One of these areas is Decentralised Finance, or DeFi for short. With DeFi, you can do most of the things that banks do — like lending, borrowing, earning interest, trading derivatives, buying insurance, trading assets, and so on. But it’s quicker and doesn’t need a third party or any paperwork.

It’s a pretty amazing concept. So, if you’re into cryptocurrency, it’s important to know all the key details. This article talks about those details. Make sure to read it all to understand better.

What is DeFi?

Decentralized finance, also known as DeFi, is a broad term for various financial applications in the blockchain or cryptocurrency world that aim to shake up financial middlemen. It’s built on secure, spread-out record-keeping systems.

The goal of DeFi is to build a financial service ecosystem that doesn’t need permission, is clear, open-source, and doesn’t have a central authority. It’s open to everyone. Users will have complete control over their assets and will interact with this ecosystem through peer-to-peer (P2P) and decentralized applications (DApps).

Working of DeFi

Decentralized finance, mainly built on Ethereum, is all about programming. It uses smart contracts and cryptocurrencies to provide services that don’t need middlemen.

In the current financial world, financial institutions act as the guarantors of transactions. In decentralized finance, a smart contract takes the place of these institutions in a transaction.

A smart contract can hold funds and either refund them or send them based on various conditions. Once a smart contract is live, it always runs as it’s programmed to, and nobody can change it. Here’s an example to make it clearer:

Imagine a contract designed to give an allowance. It could be programmed to send money from Account X to Account Y every Friday. But it will only do this if Account X has enough funds. Nobody can alter the contract to add Account Z as a recipient and steal the money.

Also, anyone can audit and inspect the contracts, which means bad contracts will quickly be noticed by the community.

Decentralized Finance vs Traditional finance

DeFi, or Decentralized Finance, is a new system that aims to transform the traditional finance sector. It offers the potential to function as a financial instrument beyond the control of regulatory bodies and governments. This gives it the power to potentially disrupt traditional finance. The following is a comparison between DeFi and traditional finance:

1. Trust: In traditional finance, you have to trust financial institutions with your money management. They should not mismanage your money, including lending to risky borrowers, etc. On the other hand, DeFi allows you to manage your own money.
2. Access: To use financial services in traditional finance, you need to apply. However, DeFi is open to anyone.
3. Payment Processing: In traditional finance, it can take several days for payments to complete because of manual procedures. In contrast, DeFi can complete payments in minutes.
4. Transaction Activity: In traditional finance, transaction activity is closely coupled with your identity. DeFi, however, is pseudonymous.
5. Market Closure: Traditional finance markets can close down at certain times, while DeFi operates 24/7.
6. This comparison highlights the potential advantages of DeFi over traditional finance, such as increased accessibility, faster transactions, and greater user control over their assets.

Decentralized Exchanges (DEXs)

Decentralized exchanges, also known as DEXs, are peer-to-peer marketplaces where people trading cryptocurrencies can make transactions directly, without needing a trusted middleman to hold onto the money. These exchanges connect users directly, and trades happen straight between user wallets, thanks to smart contracts.

Most of the time, DeFi exchanges don’t offer custodial wallets, and users connect to these platforms through a Web3 enabled app or browser extension like Binance Chain Wallet, Coinbase Wallet, MetaMask, and so on.

Once you’ve connected your wallet to the platform, you can start trading cryptocurrencies. Most DeFi exchanges have simple, user-friendly interfaces that make this process easy.

Use Cases for DeFi

Here are some of the primary applications of DeFi:

• Synthetic assets and derivatives: This enables the creation of tokenized derivatives with enhanced security.
• Infrastructure development: It offers the necessary tools for compiling, integrating, and developing blockchain solutions.
• Asset management: It facilitates the sale, purchase, staking, earning interest on, and transfer of digital assets.
• Compliance and KYT: It offers Know-Your-Transaction (KYT) services, which monitor transaction behaviors instead of user identities.
• Risk management and analytics: It assists in data analysis for risk reduction and evaluation.
• Payment solutions: It offers safer, more transparent, and quicker solutions compared to traditional payment systems.
• Decentralized Autonomous Organizations (DAOs): These are decentralized administrative entities that handle core financial operations.
• Digital identity: It offers a portable self-sovereign identity that is private and secure.
• Insurance: It provides secure audits, automated insurance claims, and reduces paperwork.
• P2P lending and borrowing: It ensures peer-to-peer borrowing and lending with low risks and high-interest rates.

Risks Associated with DeFi

Here are some of the risks associated with DeFi:

• Risk of hacking: All potential applications of DeFi depend on software systems, which are susceptible to hacking.
• Collateralisation: Nearly all DeFi lending transactions require collateral that is at least 100% of the loan’s value, if not more. This significantly restricts the eligibility for various types of DeFi loans.
• Lack of consumer protection: The lack of regulations means that users have limited options if a transaction goes wrong.

Future of DeFi

DeFi holds the promise to transform the financial sector in an era where privacy and data security concerns are on the rise. However, it first needs to tackle challenges related to liquidity, regulations, scalability, and security.

As of November 2020, less than $20 billion was locked in various DeFi products, with a significant portion on Ethereum. By the following year, this value had soared to over $260 billion, with Binance Smart Chain alone contributing $19 billion. If this trend continues and the predictions of decentralized finance enthusiasts are accurate, this could be just the beginning of a massive DeFi wave.

Over the years, DeFi has gained substantial momentum. Crypto enthusiasts interested in this space should consider all the aforementioned crucial factors. Moreover, due to the significant risk involved, they should conduct thorough research before interacting with DeFi applications.

Brics: A DeFi based Revolution in Financial Industry

The BRICS (BRC) Coin is an innovative solution based on DeFi designed to establish a worldwide financial ecosystem . It embodies financial inclusivity, transparency, rapid transactions, and innovation, with a strong emphasis on security and privacy.

With BRICS Coin, you have the opportunity to engage in DeFi activities such as:

• Lending: Loan your coins to others.
• Borrowing: Obtain a loan in coins.
• Yield Farming: Earn rewards by participating in a DeFi platform.
• Providing Liquidity: Assist a platform in operating smoothly.
• Decentralized Exchange Services: Trade coins directly with others.

Additionally, here are the top features BRICS Coin (BRC) offers:

• Easy international Payments: Utilizing blockchain technology for quick, secure, and simplified cross-border transactions.
• Affordable transactions: Engineered for low transaction fees, stimulating economic activity and promoting financial inclusion.
• Global usage: Intended for worldwide use, providing an alternative to traditional currencies.
• Independence: Not tied to any specific country or economic group, enhancing trust and attracting a diverse user base.
• Economic collaboration: Facilitates increased trade, investment, and financial collaboration among BRICS countries, contributing to global economic growth.
• Security: Based on Blockchain and cryptography with additional security features for secure transactions and ecosystem.

More details about these DeFi activities and features can be found in the BRICS whitepaper. Moreover, the ICO sale round is live with 600 million out of 1 billion BRC coins up for grabs. The minimum target for this round is $67 million.

BRC coins can be bought using BTC, ETH, USDT, and TRON. The ICO round will run until July 31, 2024. The current rate is 2 BRCs for 1 USDT, but remember, the price will increase as the sale progresses. So, invest early for potentially higher profits. Join the revolution, become a part of the financial future, and secure your BRC coins today!

Originally published at https://www.bricstechnology.io on December 14, 2023.