What You Need to Know About DeFi and DeFi Stocks
DeFi is usually confused with Bitcoin. However, the two are closely related but different. DeFi is a term that means Decentralised Finance, a blockchain technology that enables financial services in a decentralized environment. Unlike bitcoin, DeFi is associated with Ethereum and any other cryptocurrency embedded in it.
The technology in question eliminates the government-controlled financial system drawbacks through the central banks. DeFi creates a decentralized finance system without the need to control the money. Since DeFi runs on the blockchain, a public, decentralized ledger, all nodes in the network will have a copy of the transactions.
DeFi’s Difference From Bitcoin
Bitcoin is a cryptocurrency that runs on a decentralized environment and is based on the store as a value concept. Unlike Bitcoin, DeFi allows users to gain interest and borrow against their corresponding cryptocurrency service providers. With the rise of FinTechs, DeFi technology has come in handy. DeFi technology has enabled the Fin-Tech holdings to provide saving services and lending to their customers.
Decentralized Finance technology enables Ethereum, a leading cryptocurrency that allows other cryptocurrencies to operate in their environment. DeFi also enables Fintechs to offer insurance to their customers.
Uses of DeFi Technology
With DeFi gaining popularity, there has been a pool of new applications. Some of the uses of DeFi technology include:
Stable Coins
Most cryptocurrencies are volatile, meaning they gain and lose their value easily. DeFi has enabled a stable asset-backed coin. Stablecoins are mostly offered to Fintechs for lending, remittance, and borrowing.
Synthetic Assets
In this case, DeFi works hand in hand with conventional financial systems to allow one to trade assets without necessarily owning them. The assets allow tokenized derivatives that are introduced into the blockchain. Users can then gain interest based on the stocks of the assets.
Gaming
Gamers and gaming platforms can now gain revenue, making it not just entertainment. With DeFi, gamers can buy characters and tools and get paid using cryptocurrency. A platform such as GameFi allows tokenization which pays the gamers using cryptocurrency for different activities.
Exchanges
DeFi allows peer-to-peer markets. In the markets, users can directly borrow and lend crypto. The technology is non-custodial and without a KYC, making it faster and cheap. In the platform, the users have a wallet from which they carry out the trade through smart contracts. Therefore, there is a reduced risk of hacking and market manipulation.
KYT
Traditional systems are based on knowing your customer (KYC). However, with DeFi, a transaction is the most significant factor. Therefore, the identity of the user doesn’t have to be revealed.
Data Analytics
Since transactions are public and decentralized, there is a large data pool. Therefore, you can utilize the data from the different platforms to make informed business decisions.
Stocks Utilizing Defi
With DeFi allowing easy exchanges, users can trade stocks on the platform. Some of the biggest stocks to watch in the platform in 2022 include:
RIOT
RIOT allows users to mine cryptocurrency through large-scale facilities. RIOT is valued almost the same as Bitcoin, the leading cryptocurrency. The stocks have a high investment potential
CoinBase
CoinBase boasts of being the most traded company within the DeFi environment. The coin has generated over 1.5 billion dollars in the past few months.
BITO
Bito is a new crypto ETF that is finding ground in the market. However, with the uncertainty surrounding ETFs and regulations on crypto, the bigger population of crypto users hasn’t bought into the idea.
CAN
CAN, an entity of Canaan Inc, is similar to RIOT. The crypto-mining platform is focused on developing solutions for cryptocurrency mining using high computing queries.
Polygon
MATIC is a platform that supports scaling for Ethereum apps. Polygon/ MATIC happens to be one of the drivers of the DeFi system. Market analysts predict it might be one of the stocks to watch out for.
Benefits of Using Decentralized Finance Technology
DeFi Technology boasts several benefits. Below is what DeFi technology offers:
- High interests and low charges: Two parties can transact using DeFi directly. Therefore, the users do not require to go through an intermediary. Transactions in the decentralized finance system have low charges, attracting more customers. Also, users can negotiate interest rates during transactions.
- Security: Blockchain transactions are immutable. Therefore, transactions can not be changed. With such functionalities, users can transact without worrying about the security of their transactions. DeFi transactions are also public, eliminating the transparency question.
- Accessibility: Unlike conventional financial institutions that require certain documents to open an account or transact, DeFi technology eliminates the accessibility question. Anyone with internet access can access DeFi services.
- The financial system also boasts autonomy. DeFi does not depend on a centralized financial system. Instead, the decentralized financial system mitigates some of the conventional financial system’s risks. Banks can lose money or collapse, unlike DeFi System.
The Big Question: Security
Is DeFi safe? It is a question that many people interested in DeFi or cryptocurrency keep asking. DeFi, a new financial system, might not be a successful investment like any other start-up. Therefore you can anticipate some issues.
Also, errors by developers, especially Web3 technology, can leave room for hackers to profit from. Unlike conventional financial institutions, platforms running on DeFi technology are not insured. Therefore the users are likely to bear the burden of risk.
However, another DeFi entity is in the process of solving such drawbacks. DeFi insurance is a platform that allows users to pool risks with their cryptocurrencies as their collateral. The pooling system has premiums for those who wish to have their cryptocurrencies to be protected.