What is Decentralized Finance (DeFi)?
A field in cryptocurrencies attracting huge attention is Decentralized Finance (or simply DeFi).
DeFi aims to recreate the traditional financial system with less, well, middlemen. Many of the traditional actions in the markets such as lending, borrowing, structuring derivative products, and the buying and selling of securities can now be done through a decentralized open-source network. The vast majority of these applications are currently created on Ethereum, but in principle, other platforms with smart contract capabilities could work too.
What DeFi offers?
DeFi is offering unrestricted control on your own assets. Though many new-era banks and fintech firms promise to provide more control to the users, in reality, you still must put trust in them to manage your funds. The objective of DeFi is to give you full control of your assets, and it can because of decentralization and blockchain technology.
Anyone can store, trade and invest his assets on blockchain securely and earn a much higher user experience than from the traditional financial system. Since there are no intermediaries handling your asset, you have completely control over your investments and less management and functional costs.
Currently, the largest functions of DeFi are:
- Creating monetary banking services (e.g., issuance of stablecoins)
- Providing peer-to-peer or pooled lending and borrowing platforms
- Enabling advanced financial instruments such as DEX, tokenization platforms, derivatives and predictions markets.
Problems of DeFi in smart contracts
The increase in fees for smart contracts has got many concerned within the crypto community. This is because as the network activity reaches its limits, its congestion leads to a higher number of unconfirmed transactions and confirmation times take longer than normal. It also renders some smart contracts virtually unusable. This is a critical issue for smart contracts, which has no shortage of competition. Some of the top exchange platforms have also spoken about taking drastic measures to counter the rising cost.
In the case of lending and borrowing, one of the biggest problems today is overcollateralization. As there are no guarantees with such a volatile market, lenders want significantly higher collateral to be put up for their loans. This leads to a situation where many lenders won’t actually work with a borrower unless they can effectively front a significant amount of assets, which undermines the essential function of borrowing.
Another common issue with the DeFi industry is that sometimes “Decentralized Finance” isn’t as decentralized as it should be. It is not uncommon for new projects to give a high degree of control to the developers, so that they can develop the network and respond and fix issues as fast as possible. While this makes sense, it can lead to a situation where a DApp that is meant to be distributed is still in fact centralized in some way.
This can be risky even if the team behind the product is trustworthy, as it opens the door for misuse of consumer funds.
According to the problems which can be found on smart contracts, especially for the increasing of gas fees. Many users don’t seem to be happy to pay that high amount and they complain about this all the time. ECOChain has found a solution to the weaknesses of Decentralized Finance (DeFi) by creating our own DeFi. The DeFi called “EFG” or ECOC Finance Governance which created by the ECOChain developers with a passion in POS and decentralization. Aiming to fix all the problems which users have been suffering for a long time.
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