There were over 3,000 decentralized applications established on Ethereum in 2021.
What does this mean?
The financial landscape is changing at a rapid pace; there is a major shift from centralized currency to transaction processes that are controlled by no single entity.
People are seeing the enormous value in DeFi systems, and new protocols are being developed every day. But with the incredible speed at which blockchain technology is evolving, the level of entry is growing more and more daunting.
Using a social trading platform can help bridge the knowledge gap. Continue reading to learn more about how DeFi works and how you can use it to strengthen your trading portfolio.
What Is DeFi?
Decentralized finance (DeFi) is a financial concept referring to decentralized financial systems. The system heavily relies on blockchain technology, the same application that Bitcoin uses. The DeFi infrastructure is positioned to eliminate the need for a centralized currency.
DeFi and crypto are not the same, however. Where Bitcoin is on its own blockchain and offers a singular value, DeFi focuses on the broad scale of how to apply that value to financial services. DeFi is decentralizing processes such as trading, borrowing, lending, etc.
How Does DeFi Work?
DeFi uses crypto and smart contracts to eliminate intermediaries. For example, if you wanted to pay your friend for lunch digitally, Your money would traditionally travel from:
- Your bank
- Your transfer company (Venmo, Paypal)
- Your friend’s bank
- Your friend
A DeFi system sets up a decentralized agreement to pay your friend for lunch when certain requirements are met (like having enough money set aside to fulfill payment). Your money goes directly to your friend, and you don’t have to wait for intermediaries to process the payments or pay any transfer fees.
In the current landscape, a majority of smart contracts are set up on the Ethereum network. This blockchain allows users to build on its protocol. Decentralized financial solutions emerge from this freedom to establish specific regulations.
Social Trading Platform for Beginners
Participating in DeFi solutions, however, is a new and complicated process. Because the technology and concepts are still developing, the level of entry for beginners is steep. The biggest issue surrounding DeFi trading is the user experience.
some of the social trading platforms are working to improve their user experience. Nested is a social trading platform that allows its users to copy successful trading patterns as they learn about the concept. This resource gives beginners an easy point of entry to building a DeFi portfolio.
Everything Else You Should Know About DeFi
Blockchain technology has created a more efficient trading landscape. However, there are several new concepts to understand before you can navigate how to properly handle your new crypto.
For more information on the ins and outs of DeFi, as well as a deeper dive into cryptocurrency, trading platforms, and more, check out our technology section.