What are DeFi?

DeFi, as mentioned above, is the abbreviation for "Decentralized Finance".

It is a movement that aims to create a financial services ecosystem with the following characteristics:

• Open source
• Permissionless
• Transparent
• Accessible to everyone
• And to operate without any central authority

In this way, users would maintain full control over their assets and interact with the ecosystem through decentralized peer-to-peer (P2P) applications(dApps).

Simply put: they are a set of tools and protocols that attempt to bring the instruments of the traditional financial world (but improved) to the world of cryptocurrencies.

What are the benefits?

There are multiple advantages of using DeFi over traditional finance. Some of the most outstanding ones are:

• Reduction of intermediaries: the code regulates everything, and resolves any possible dispute. No need for "arbitrators" (courts, commissions, banks, etc.).
• Cost reduction: as there are no intermediaries, costs are greatly reduced and a frictionless financial system is achieved.
• Censorship resistance: everything is recorded on the blockchain and propagated through thousands of nodes, making censorship difficult.
• Ownership of your funds: Your funds are yours and yours alone. No government or institution can freeze your accounts or prevent you from moving your money.
• Ease of access: it is available to any individual who wants it, regardless of income or any other condition.

In some cases, such as privacy DEXs, thanks to coin mixing and other technologies, these transactions or movements become totally untraceable.

What are the disadvantages?

DeFi technology is still very young. It needs to develop and become more efficient. But this, really, is something inherent to the high-tech world.

However, here are some of the disadvantages of DeFi today and what is being worked on to try to overcome them:

• Inefficiency: at the moment, blockchains are slower than centralized networks.
• Bad user experience: currently the user experience in DEXes is mediocre. Not very intuitive, without too much information, and having to do a lot of research to understand it.
• Risk of user error: "your keys, your crypto, your responsibility". Having full control of your funds comes with a responsibility. DeFi must look for highly intuitive solutions so that the possibility of error is minimized.
• Chaotic ecosystem: currently, if you have invested in different platforms, there is no way to know your positions without visiting each website one by one to see your portfolio and its performance. However, solutions are already being sought, such as Step Finance, that intuitively track and display all your positions.

One last point we could include would be the high gas commissions (for using the network).

The most important network in the DeFi world is Ethereum, closely followed by the Binance Smart Chain.

Evolution

The evolution of Decentralized Finance in this last year (2022) has been exponential. This is very positive news for the crypto ecosystem, and justifies its growth in the face of those who believe it is simply a bubble.

Let's look at three key parameters that define DeFi's growth:

• TVL (Total Value Locked): refers to the total funds deposited on DeFi platforms (mainly DEX). A picture is worth a thousand words, so watch out (over $75 billion currently deposited and with a magnificent evolution!):

Traded volume: reflects the amount (in dollars) exchanged in these DEX (Decentralized Exchanges). As can be seen in the following graph, the growth is exponential, and last month alone (April 2021) the volume was more than 150 billion dollars.

• Number of users: we come to the most important metric of all. With it, we can see the real adoption of the DeFi world. And, as expected, this is also being accelerated: there are already more than 2 million users in this ecosystem!

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