What is DeFi? We all must hear something about this even if we are far from FinTech, So Let’s understand Diversified Financial or decentralized money in few steps..
The easiest way to explain it is that: DeFi is a term for decentralized financial products and services accessible to anyone on the Blockchain. Instead of going to a Bank, we can now have access to financial services provided by people around the world.
1. But why do we need something this complex?
Right pointing backhand index To provide better access to financial services to more people.
Let’s see the following eg.:
Imagine you are travelling through Singapore and suddenly you need ₹100k.
You call your bank in India and so on..
2. The best Use Case
…ask for ₹100k. “It’s an emergency Sir, I really need it now.”
The Bank looks into your account and replies: “Sorry, we can’t lend you more than ₹50k at the moment and it will take 2 working days to have the money in your account.”
“Damn but now problem comes in..
3. The problem
“it’s Friday and I really need the money now to get back home on Monday. If at least someone in Brasil could lend me the money. We make a contract agreeing on the conditions Sleepy face
But, wait a sec..
4. Understanding the problem..
“Which mechanisms are there to solve my problem other than banks?
Can a friend of mine lend me the money? And how can I have the money faster than the 2 working days?
Then something click in mind that somewhere I’ve heard this Ethereum thing could help”..
5. The solution.
And here comes DeFi. Just by connecting apps on the Ethereum blockchain, you can access to people around the globe willing to lend you money.
And the best part?
It works 365 days a year and don’t need 2 working days to get the money..
You agree on the conditions with the borrower using a Smart Contract, have the amount wired to you in ETH and puff, done.
After you’ve got the amount you’ve asked in ETH, you exchange it for ₹₹ and withdraw it from your account. Now our mind started thing…
“But is DeFi just about lending money?” No .. So again we have question..
6. So what can I do with DeFi other than lending money?
Some use cases are:
- Buy Insurance
- Fund your ideas
- Start savings accounts
- Send money around the globe
“But that’s it? No it’s still not completed.. Then question comes in our mind why should I care about DeFi?”
7. DeFi big vision
We should care because DeFi isn’t just about giving financial access to people who already have it. Instead, in the India alone, there are 190 million adults no access to financial services.
And by the way, DeFi offer very interesting solutions when compared with Traditional Finance.
So again question comes in mind what is that and how?
Basically DiFi cuts out the middle man – the Banks – who profit from lending you money and managing your money.