A Deep-Dive into DeFi

by Jurica Dujmovic
By Beth Canova

When people talk about decentralized finance (DeFi), do you know what they mean? 

I think, to understand DeFi — and why so many are so excited about it — we need to understand that the existing financial system has reached its technological limits. 

Which makes sense, considering the last real big “change” to the traditional financial system (TradFi) came with the PC revolution. 

But even that leap forward only meant we started computerizing accounts, banking transactions and the like. Nothing about computers fundamentally changed the system. It was all for convenience.

The “modern” version of banking we’re used to now — things like phone apps that allow you to deposit checks wherever you are, or transfer money with the click of a button — are all just fancy technological layers on top of really old systems.  

But with DeFi, it’s like we started again from the ground up. We wanted to design the financial system based on the technology we have today: a clean slate. 

That's what DeFi is: It's a reinvention of a financial system, one without the processes and prejudices of the old system.  

That's the big revolution. DeFi cuts ties with the legacy system and the main features that's holding that back: centralization.

With centralized systems, there is only one point of attack, one area a bad actor needs to target to inflict maximum damage. 

The United States suffered 1,473 cyberattacks in 2020, leading to 164.6 million successful data breaches. It’s no wonder 80% of Americans are afraid companies may be unable to protect their data and funds.

But with DeFi, that’s less of a worry. By nature, there is no one single access point in DeFi. That means bad actors need to work harder in order to break through any DeFi platform’s defenses. 

And if they do? Your information and funds are still safe. That’s because none of it is stored on a true DeFi platform.

Additionally, in DeFi, all transactions need to be validated on the open-source blockchain that anyone can review. As the slogan goes, “If you see something, say something.” With everyone reviewing the data, the community keeps itself honest.

That’s not to say there aren’t hacks in DeFi. Bad actors are constantly getting smarter and finding ways to trick people into giving up their wallet keys or other vulnerabilities. 

But overall, it’s more insulated from severe hacks than the world of TradFi.

And that’s just the start. The idea and technology behind DeFi can be used across a range of ideas, not just as a replacement to the current financial system.

Sure, it encompasses things like lending, borrowing, markets, yields and staking, but there are thousands of different ways to apply it, including in exciting new sectors like the metaverse, play-to-earn (P2E) gaming and non-fungible tokens (NFTs). 

Like anything new, DeFi can be hard to wrap your head around. It’s an entirely new system — one that can replace the old financial world and bring about new opportunities we couldn’t have conceived of otherwise.

That’s why Chris Coney, host of our Weiss Crypto Sunday Special, has a DeFi MasterClass, a series of six modules to walk you through the basics of understanding the world of DeFi. 

Information is opportunity, so I suggest you take advantage of Chris’ expertise. To do so, call our Member Care Team at 1-877-934-7778.

Best,

Beth Canova

 

About the Editor

Beth Canova is a veteran of the publishing industry, specializing in cryptocurrency-related information and guidance. As the Managing Editor of some of world’s most astute cryptocurrency experts — Juan Villaverde, Dr. Bruce Ng, Marija Matić and others — she's continually immersed, and well versed, on everything crypto.

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