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Demystifying DeFi: Advantages and challenges faced by the DeFi space

Updated: Sep 19, 2022

Decentralized Finance, also known as DeFi, was envisioned to remove third-party networks or the middle man from financial transactions. It aims to eliminate the control that banks and financial institutions have over money matters and enable everyone to participate in finance, regardless of identity and location.

But as promising as it sounds, DeFi technology is still young. It offers revolutionary solutions to problems that have riddled the financial world, but it also comes with a host of risks. Let’s dive into the pros, cons, and future of the DeFi space.

Advantages of DeFi technology

DeFi technology aims to break away from centralized financial systems (also known as CeFi), where your assets are controlled by banks that, by and large, run for profit. CeFi systems also charge fees for transactions, set restrictive loan regulations, and have complicated rules for money transfers across borders.

DeFi eliminates these inconveniences.

DeFi is inclusive and permissionless.

Unlike CeFi, DeFi allows for simple and effective access to financial services. No need to present heaps of documents to open a bank account or apply for a loan. Anyone with a crypto wallet and internet connection can participate. Location doesn’t matter, too. Because it’s decentralized, financial transactions are not governed by a national banking system, and users can manage their assets anytime, anywhere, with no banking fees.