Decentralized Finance 2.0: What Is DeFi 2.0?

Decentralized finance is digital ledgers just like the ones used in cryptocurrencies, a financial technology of secured distributed ledgers which removes the intervention of control banks, financial institutions. 

Are you the one who got attracted to Defi by its features to transfer money in a wink of an eye or you are lured by its feature of keeping money in digital format. Well, there can be a lot many reasons accompanied like no fees,  no need of internet connection or approval. 

Well to dig more about decentralized finance let's talk about Centralized finance to mark the line of difference in Defi and Centralized finance. 

Centralized Finance:

In this system, money is kept by banks, where the main aim of banks is to make money by earning interest on the money lent and even the bank charges a fee called service charges.

There are a lot many services provided by banks for which bank charges fees like giving cheque facility, loan facility, debit cards, credit cards. 

Decentralized Finance:

Decentralized Finance eliminates the intermediaries and allows the business, merchants, people to conduct transactions, which serves as a network through the advancement of technology. Decentralized finance allows everyone to use financial services regardless of any place, personality. 

How does Defi work? 

Defi uses blockchain technology.  An application called dApps is used to handle transactions and run the blockchain. Information here is stored in blocks, verified by other users,  after the verification another block is created having data within it. 

The blocks are chained together using a chain that stores the data without affecting the data stored in the blocks which provide another security protocol, leading to the secure nature of blockchain. 

Financial transactions are one of the core premises,  in Defi you need to enter your loan needs and an algorithm will match you up with your needs. The transaction is recorded in the blockchain; you receive your loan after the consensus mechanism verifies it. 

Then, the lender can begin collecting payments from you at the agreed-upon intervals. When you make a payment via your dApp, it follows the same process in the blockchain; then, the funds are transferred to the lender. 

Future of Defi:

Decentralized finance 2.0 is still in the beginning stages of its evolution. For starters, it is unregulated, which means the ecosystem is still riddled with infrastructural mishaps, hacks, and scams. 

Current laws were crafted based on the idea of separate financial jurisdictions, each with its own set of laws and rules. 

DeFi’s borderless transaction ability presents essential questions for this type of regulation. For example, who is responsible for investigating a financial crime that occurs across borders, protocols, and Defi apps? 

Who would enforce the regulations, and how would they enforce them. Other concerns are system stability, energy requirements, carbon footprint, system upgrades, system maintenance, and hardware failures. Few questions are unanswered, advancements made before DeFi becomes safe to use. 

Financial institutions are not going to let go of one of their primary means of making money—if Defi succeeds, it's more than likely that banks and corporations will find ways to get into the system, if not to control how you access your money, then at least to make money from the system. 

The Defi is aimed to get rid of third party transactions, Defi is designed in such a way to use in its own system. 

Total Value Locked in Defi is the sum of all cryptocurrencies staked, loaned, deposited in a pool, or used for other financial actions across all of Defi. It can also represent the sum of specific cryptocurrencies used for financial activities, such as ether or bitcoin. 

Written By- Shruti Tayal