The currently existing age-old financial services have many points that need upgradation and improvement. They are not objective for some people and some remain unbanked. This lack of access to financial services can prevent people from being employable. Other problems like slow transaction speed, rent-seeking intermediaries, and security issues negatively affect traditional financial services. Moreover, these financial markets can be shut down by the government and centralized authorities.
This is where DeFi influences positively. DeFi or Decentralized Finance is a new form of finance that aims to remove any third-party interventions and create a permissionless, transparent, open-source and decentralized financial ecosystem. This article shall go through various Ethereum DeFi solutions after briefing about the Ethereum protocol.
Ethereum is an open-source blockchain platform launched to build smart contracts and decentralized applications and provide various DeFi solutions. Vitalik Buterin, a Canadian-Russian programmer, introduced it to expand the scope of blockchain from the financial limits of the Bitcoin blockchain. Launched in 2015, Ethereum is a Proof-of-Work-based protocol, and ether is the native cryptocurrency of Ethereum.
Ethereum provides the following benefits to its users:
- Anyone with an internet connection can access the Ethereum protocol and benefit from its financial services.
- The users are not obliged to provide all their details to use an Ethereum app. It focuses on value, not surveillance.
- Ethereum provides a peer-to-peer network where you can transfer money and make agreements without any intermediary interventions.
- No central authority controls Ethereum and thus, it is hardly feasible for anyone to stop you from accessing its financial services.
- Ethereum provides its customers a secure and inbuilt guarantee that ownership of funds will change only when you provide what was agreed.
Ethereum DeFi Solutions
Fast money transactions around the globe
With Ethereum, you can securely transfer money worldwide as easily as sending an e-mail. You need to have a wallet to send or receive payments.
You can also stream money around the globe, which provides you several benefits like paying someone by the second and giving access to their money whenever in need.
Access Stable Coins
The DeFi community has used stable coins to solve the volatility problem in cryptocurrencies. Their value is tied to another asset, usually a prominent currency such as the dollar.
Many Latin Americans had utilized stable coins to secure their assets when their government-issued currencies were greatly volatile.
Borrowing money from decentralized sources can be categorized into two types: borrowing directly from a specific lender in a peer-to-peer arrangement and lenders contributing funds (liquidity) to a pool from which borrowers can borrow. A borrower can choose from any two options based on their requirements.
Borrowing in decentralized finance provides you privacy and tax efficiency.
Flash loans are decentralized lending that allows you to borrow money without putting up any collateral or disclosing personal information.
It works on the principle that the loan is acquired and paid back in the same transaction. The transaction is considered as if it never happened if the amount is not repaid
On Ethereum, there are thousands of tokens, and DEXs (decentralized exchanges) allow you to trade different tokens. You never renounce control of your assets, and this is similar to using a currency exchange when visiting a foreign nation. Unlike a currency exchange, the DeFi version never closes and the technology behind it ensures that your trade is accepted any time of the year.
Decentralized insurance attempts to make insurance more accessible, affordable, and transparent. Coverage is more economical, and payouts are much faster with increased automation. The information used to evaluate your claim is completely open.
Bugs and vulnerabilities can occur in Ethereum goods, just like any other program. As a result, many insurance products in the industry currently focus on preventing users from losing money.
Ethereum-powered DeFi solutions offer complete financial liberty to users. It solves the issues arising in centralized finance by eradicating the role of intermediaries. With the help of smart contracts, services that were formerly slow and at risk of human error are automatic and secure. Moreover, it is completely transparent, where anyone can inspect and scrutinize the codes. Due to such benefits, Ethereum-based DeFi apps are also on the boom, making Ethereum a sturdy and unshakeable blockchain ecosystem in the blockchain space.