31 May Everything Africa (And Beyond) Needs To Know About DeFi And How It Works?
Decentralized finance (DeFi) refers to financial services carried out on a public blockchain such as Binance Smart Chain or Ethereum. It is a more secure and transparent alternative to traditional financial institutions.
DeFi allows you to do most of the things that banks allow, such as borrowing, lending, and trading.
It also removes the need for intermediaries or middlemen by allowing people to carry out financial transactions through emerging technologies like the smart contract, or a self-executing contract between two parties written into lines of code. There are no third parties or central authorities involved that can block your payments or deny access to transactions.
With DeFi, no one is responsible for – or in control – of your money. Only you are.
Instead of using a third party, DeFi uses an application through blockchain technology known as the DeFi protocol. This connects users directly, making it easy to connect crypto wallets to DeFi applications and make transactions easily.
Difference Between DeFi and Traditional Finance
Traditional finance differs from DeFi in several ways. Check out some of these differences below:
- With DeFi, you control how your money is spent and where it goes, but with traditional finance, there is the fear that the financial institutions can mismanage your money or limit your access to it.
- You can make instant transfers with DeFi. Transfers with traditional finance might take days due to the manual processes involved.
- DeFi transactions are more transparent. Anyone can see the DeFi product data and how it works. However, the books are closed with traditional finance. You can’t see their managed assets, loan history, or how they really operate.
- DeFi allows you to make secure transactions without inputting your personal contact details. Your identity is encrypted. But with traditional finance, you have to verify your identity and input contact details to do so.
- DeFi is cheaper. There are no intermediaries to be paid, so fees are reduced. Traditional finance, on the other hand, is costlier because of the presence of intermediaries and the charges that apply.
Benefits of DeFi
Why should you use DeFi? Below are the benefits you enjoy when you use DeFi:
- Easy and open access
You don’t have to apply to open an account or carry out a transaction. All you need to do is create a wallet to get instant access.
- Transactions are pseudonymous.
To carry out transactions, you do not have to input your contact details. No need for names, email addresses, or any personal information.
- It is extremely flexible.
DeFi is flexible. This means that you can move your crypto assets at any time to any place without asking for permission from anyone or waiting for long hours before the transaction is completed.
You can even avoid expensive transaction fees.
- High interest rates
The rewards and interest rates on transactions are usually updated swiftly. Sometimes, as quickly as every 15 seconds. These interest rates are frequently much higher than those found in traditional Wall Street.
For example, when you save with Xend Finance, you get as much as 15% interest, which is more than the 1% or 2% that traditional institutions offer.
- It is transparent
Everyone involved in the transaction can see what is going on. No one can go behind your back to withdraw your money or make changes to your transactions. This doesn’t just make it transparent but also more secure.
DeFi products are products designed to offer financial services powered by blockchain technology. There are different kinds of DeFi products.
Some of these products include:
- Lending Platforms
Lending platforms also do not have intermediaries like banks do. Instead, they make use of a smart contract. This allows both borrowers and senders to participate in an open system.
The lenders earn interest by loaning their crypto assets. Borrowers, on the other hand, get liquidity without selling their assets. With DeFi, borrowers put in more assets as collateral than the value of the loan they are getting. Examples of DeFi lending platforms include Compound and Maker.
- Yield Farming
Yield farming is the act of locking up cryptocurrencies for a period to get rewards. Yield farmers are always in search of the best rates. They stake popular coins like tether, dai, ether, and more. Major platforms to farm DeFi yields include Aave and Compound.
- Decentralized Exchanges (DEXs)
Decentralized exchanges function without an intermediary. They allow users to connect directly with one another to trade cryptocurrencies. These exchanges are not as popular as centralized exchanges.
The assets you buy and sell through DEXs are not held in a third-party wallet, unlike centralized exchanges. Examples of DEXs include Curve and Uniswap. Centralized exchanges are usually operated by a central authority, for example, Coinbase and Binance.
- Prediction Markets
Prediction markets let you make bets on the outcome of events. These markets work like the traditional prediction markets, but the difference is that the predictions happen on the blockchain, so there are no intermediaries.
Gnosis, Augur, and FTX are examples of DeFi prediction markets.
Ways You Can Use DeFi
There are several DeFi products that allow a wide range of activities, a list that is ever-growing. With DeFi, you can:
- Access stable cryptocurrencies
- Send money to anybody, anywhere in the world
- Borrow funds with collateral.
- Buy and sell tokens
- Save cryptocurrency
- Stream money across the globe
- Manage your investment and savings portfolio
- Buy decentralized insurance.
- Lend cryptocurrency and growing your funds in real-time
- Get funding for your ideas through crowdfunding, quadratic funding, and more.
Xend Finance: The Ultimate Platform for Seamless Blockchain Banking
When you think of DeFi, one of the names that should naturally pop up is Xend Finance.
We are the first blockchain bank out of Africa, backed by Google Launchpad and Binance. Our platform allows users to easily convert their local currency into stable cryptocurrencies. We also offer users up to 15% annual interest when they save in stable cryptocurrencies.
Not only do we have our mainnet and the Xend Finance mobile app for easy financial transactions, but we also have other DeFi products like:
- The industry’s first cross-chain high yield aggregator on the Binance Smart Chain. Our high-yield aggregator helps savers, farmers, and investors find the highest yields in one space instead of manuevering through different platforms.
- Our native staking platform allows you to stake $XEND and earn up to 100% interest. Yes, you read that correctly. 100%!
- And finally, we help African projects access resources and connect with investors with the only African decentralized launchpad, Xend launchpad.
If you are thinking of experiencing seamless blockchain banking, our products should definitely be your first stop. Take a swing at our mobile app today and start reaping the benefits of DeFi.
Did we mention 15% annual interest, compounded daily? Click here to start saving now.