We have grown addicted to several services provided by centralized financial systems over a long period of time. We used to completely rely on banks for everything relating to finance prior to the development of decentralized finance and blockchain technologies. Since there was really no other choice, the bank gets the choice, of course. But ever since Bitcoin entered the finance industry more than ten years ago, everything has become different. As blockchain technology developed, decentralized finance began to compete with and surpass banks in many areas of finance.
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In this post, I'd want to take a closer look at some of the services that we have relied on centralized finance system to provide for us throughout the years. We'll further discuss how Defi and blockchain technology are actually outperforming the services that banks provide in certain areas.
Centralized Finance System vs Decentralized Finance System
- International transactions
Centralized system can assist you with making international payments. They do, however, have a lot of restrictions. The first is time, which is clear. The bank typically needs a lot of working time—and maybe even days—to process an international transaction. The second is the cost or fee; when banks handle transactions internationally, they frequently impose a hefty fee.
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Banks occasionally are unable to support transactions to certain countries, in addition to the time and cost of the transactions.
In a decentralized system, transactions typically occur fast and almost quickly. No barriers that restrict the money from being sent right away. In addition to processing transactions quickly, there aren't many transactions costs or fee. In some networks, sending and receiving money is actually completely free. One of the various blockchain products that may be used to send and receive money immediately and for free, regardless of location, is STEEM. Therefore, decentralized finance syatem is the better option for international transaction.
Borrowing Money (Lending)
The centralized finance system have been lending money to people for a number of years. They frequently offer individuals a wide variety of lending packages to pick from. Even though borrowing money from them appears simple on paper, the actual process is highly challenging due to the extensive paperwork and restrictions.
Collateral is the first barrier to borrowing from them. The system relies entirely on trust to run. Therefore, in order for the system to borrow you their money, you must trust them with a valuable item that might be used to recoup the money in the event that you are unable to pay.
High interest rates on borrowing from centralized finance system are another issue. Even if you offered an appropriate kind of security, it would be challenging to accept a loan with such high interest rates. In Nigeria, the typical interest rate for lending from traditional banks is 18%.
Decentralized financial systems are much more effective and convenient when it comes to lending and borrowing. This technique does not require high valuable item in form of collateral before borrowing. Instead, it requires cryptocurrency collateral with values comparable to the requested loan. Decentralized systems are accessible to everyone regardless of identity, in contrast to traditional banks that demand considerable documentation and identification. You only need a crypto wallet, which doesn't cost a dime, in order to borrow money through a decentralized financial system. Decentralized system gives out loans to anyone, regardless of their nation of residence, whereas traditional bank frequently have geographic restrictions.
Decentralized financial systems offer lower interest rates than traditional financial institutions when it comes to interest rates. I'm aware of most decentralized systems with interest rates in the single digits.
Screenshot From JustLend
For instance, JustLend is a decentralized financial system that provides customers with low rates of interest as low as 2.78% APY. This is a key factor in the success of the decentralized financial system and how much easier life is now for everyone.
Conclusion
The centralized financial system has been defrauding us by charging exorbitant fees and interest rates for lending and transacting internationally. The latter is structured securely and does not need kyc or documentation. Actually, the only requirements are a crypto wallet and an internet connection. The decentralized financial system provided by blockchain technology is truly improving life.
https://twitter.com/Memphiz_/status/1705064485805777226?t=5ItHJbwYUTENPaHOTiRuXw&s=19
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Dear @mato445 ,
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