What is DeFi? Understanding Decentralized Finance

What is Centralized Finance (CeFi)?

Transferring

  • Internal Transfers — transferring between your accounts in the same bank. These transfers are generally instant.
  • Faster payments (FP) — transferring money between different supported institutions. This is supported by most banks in the UK (in the US the equivalent is probably ACH or RTP). Generally, transactions are instant but can take up to 2 hours to appear in the target bank account.
  • CHAPS/Swift — for larger payments that can’t go by FP we have CHAPS. There is a fee to transfer by CHAPS and transfers can take 3–5 days.
  • Transfer Services — On top of traditional transfer services we also have services such as PayPal, Wise, Western Union to name but a few.

Exchanging

Saving

Lending and Borrowing

Insurance

Margin trading

Derivatives

So what is decentralized finance (DeFi)?

  • Centralised — the current systems are run by individual companies. Generally, you have to give them your money to be able to do anything with it. The company could go bust, be fraudulent or get censored.
  • Closed source — a company can do anything with your money once they have it. No one outside the company knows how the process works and there is no way to validate things are going to work.
  • Expensive — Now currently DeFi can be expensive too (e.g. gas fees) but this is only on certain blockchains. It is generally cheaper to send cryptocurrency than it is to send fiat currency.
  • Identity/Permission — to do anything with CeFi you generally need to hand over your entire identity in the form of ID cards, Passports, Birth certificates etc. Do you trust all that personal information with every company you interact with?

Cryptocurrency

Transferring

Exchanging

  • Uniswap — simple exchange with quite a few supported currencies.
  • SushiSwap — a nice interface for doing exchanges
  • Kyber — with Kyber you can choose to either lower fees or maximise your return. In some cases, it will even use Uniswap for the exchange if it is preferable.
  • DEX.AG — DEX is an aggregator and will help find the best exchange to use.

Saving

Lending and Borrowing

Insurance

Margin Trading

Derivatives

Final Thoughts

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