What is defi and how is it different from traditional finance?

Defi can be your life boat if you choose to make it so

It is the life boat that is here to save you from the drowning titanic of the fiat world

The above statement may have its shock value however if you have lived in the fiat world most of your life than you are the silent sufferer at the hands of the fiat operators.

Read on why I say it....

De-Fi = Decentralized Finance

A more appropiate technical definition would be ...

De - Fi = An ecosystem where decentralized apps or Dapps render financial services
These Dapps are build and operate over and underlying distributed ecosystem and such a system is designed to work efficiently without the need of a centralized controlling agency.

De-Fi Vs Centralized fiat

To understand why you need a life boat you need to understand what is wrong with current financial systems of the fiat world.

Finances is controlled by governments and they print as much of it as they want to without backing it with anything of value. It is centralized, non transparent and government and bank controlled.
The worst part is that it is rarely backed by anything valuable.
As a result fiat money does not have any absolute value and loses its buying power over time.

If you had $500 ten years ago you could buy certain amount of things say you could get certain amount of gold.

Over the span of these 10 years gold has become more expensive over time or your money has lost its value.

So now your $500 buys you much lesser amount of gold that you could have bought 10 years back.

Gold offers absolute value but your dollars do not. It is not just about dollars in fact it is the same case with most of the currencies around the world.

As money loses value even banks pay you less interest for holding your money with them in term or fixed deposits.

Another flaw is that banks can go bust and they close down or the government has to bail them out with a financial package.

When we think of a bank also spare a thought for those people who cannot even afford to have a bank account. Either because there is no bank or they cannot afford the Bank's service charges.

De-Fi and Crypto a viable alternative to fiat

An alternative to this fiat based financial system is a crypto based system that is decentralized and harder to corrupt and manipulate.
So crypto brings hope of a fair value of exchange, transparency and true value.
With this comes the promise of crypto to the moon!

There is a lot of talk that one day the value of bitcoin would go up so much that it would reach millions or billions of dollars.

So it was seen as a store of value and a form of digital currency which when rose and took off could make you rich and take your fortunes to the moon.

However a person needs to live and survive in the real world.
So one should be able to do all the financial activities and it is here that the concept of decentralized finance comes into the picture.
It borrows the best of both worlds fiat as well as crypto
First it is an ecosystem which works without the corrupting control of centralized banks.
Instead it has its own sets of rules which are fair,transparent and agreed upon by all operating parties.

The good thing it borrows from the fiat world is that all the things one can do with fiat money in the real world can be done with a de-fi ecosystem.

You can borrow, lend money earn interest and do a whole lot of things you would do with real money.

The above image is from defiprime.com and lists a large category of things that are being addressed in the de-fi world.

A further research took me to https://loanscan.io/ which lists so many opportunities to earn fiat as well as crypto by lending your money.

The borrowing-lending interest rates are much better than what most banks offer.
With this knowledge I see the de-fi ecosystem evolving as a bridge between the crypto and the fiat world in terms of finance and creating a form of fungibility and trust despite using trustless transactions executed by way of smart contracts.

Final thoughts

Is De-fi the silver bullet that would cure all the ills of the fiat world?
Probably not but it is evolving and trying to improve things. The idea is certainly to move in that direction.
However if the Fiat world can have a Lehman brothers the de-fi ecosystem is not perfect either but consciously moving in a direction where the loopholes can be plugged and financial transitions can be carried out more efficiently, the cost of banking and money transactions and remittances across borders can be made cheaper and quicker.
More people can be brought in the realm of banking and that to without going to a brick and mortar bank.
These are just some of the thoughts about de-fi.
This being a vast topic, I have only scratched a little below the surface and a lot more remains to be written about.There are so many things to know if this interests you or if you wish to put your money into de-fi.

So I leave you with the final words...
Please do your due diligence and research before you invest. The purpose of this post is education only and please do not consider it as financial advice.
If you are putting your money in a de-fi instrument or wallet. Try to research about custodial- non custodial wallets.
Also never forget : Not your keys not your coins (Perhaps a topic for another post)