DeFi 101: What’s DeFi and How Is it Changing the World’s Finances?

DeFi is unarguably one of the essential components of blockchain technology. Before the advent of the use cases popularized by DeFi, cryptocurrencies were seen as digital property owned by a bunch of anonymous users on the network. And almost nothing more.

But DeFi changed all that. It made cryptocurrency owners confident of transacting with anyone on the internet without worrying about their personality. Everything was smooth, automatic, and trustless. This soon caused the traditional business channels obsolete as the elimination of intermediaries and the publicity and the ease of accessing records in DeFi made it a champion of the people.

A significant few cryptocurrency users today were aware of DeFi back in the day. Ethereum can be likened to an intricate framework of subway system on which the gigantic city of DeFi is built. The smart contract feature made riding financial systems of intermediaries effortless. And the continuous development of the code governing smart contracts boosted the adoption rate of cryptocurrencies and DeFi, creating a truly unique ecosystem.

The concept of DeFi isn’t totally new to you, is it? If it is, well…

What Is DeFi?

DeFi is a shortened form of decentralized finance. DeFi is an emerging financial technology based on secure distributed ledgers similar to those used by cryptocurrencies. The system removes banks’ and institutions’ control of money, financial products, and financial services. With the removal of intermediary institutions such as banks, the percentage charged for rendering services as the go-between is eliminated — the receiver receives more, and the payer pays less.

You may be wondering why convoluted processes such as money transactions can be done without witnesses, especially in the pro-anonymous blockchain network. The reason is simple: an underlying but open-source ledger where users’ data are kept and a consensus mechanism governing the smart contracts that mediate the process. That is until all conditions are met, there is no transaction. Nobody loses; everyone wins.

Why the Widespread Adoption of DeFi?

Considering that banks have tangible assets and are easily walk-into-able, you may be wondering why people are buying into the idea of DeFi protocols and lending systems that didn’t utilize traditional collaterals. The reasons are not farfetched: humans wanted to be in more control. They needed to do away with:

• Transaction fees that didn’t match the services they were getting
• Centralized systems that dictate how you and when you access your money
• Inconveniences surrounding transacting businesses, from delayed payments to multiple verifications

The Growth of DeFi and Predictions for 2022

Any startup or Fortune 100 company will be envious of DeFi meteoric rise, despite only going mainstream in May of 2020 through Compound’s governance token launch, COMP. Compound’s governance token was an incentive for users that provided liquidity to the platform. Over time, the value of digital assets (Total Value Locked, TVL) in the protocol’s smart contracts grew. And only a couple of years later, we are discussing a four-figure percentage rise in value.

Ethereum, being the founding blockchain of DeFi, has the most valuable protocols in all of the blockchain. It also hosts the most significant percentage of DeFi protocols. Sometime last year, the ratio of the TVL of Ehereum’s DeFi to all other blockchains was a polarizing 90 to 10. Today, the ratio has lessened considerably to 68:32. And it will decrease further.

The immense utility and scalability DeFi has brought to the blockchain world aren’t appreciated enough, even though some will argue that it is. Maybe we tend to reference and compare the adoption levels pre and post DeFi.

The one thing certain in DeFi is that TVL will break and set new records. Actually two, and more malicious actors will try to cart away users’ assets stored in the smart contracts of DeFi protocols. This is where DeFi security protocol Lossless comes in.

Conclusion

DeFi opened the gate to blockchain’s mainstream abilities and how anyone can be their own financial institution. The freedom and limitless possibilities of earning in a decentralized financial system caused a market-wide increase in valuation by over 1200%. And the zenith is yet to be achieved.

Undoubtedly, users’ experience in the hands of scammers may have caused them to rescind fully adopting crypto. But we cannot disagree that DeFi is still only in its beta phase and is primed for more with the plethora of use cases newer chains like Terra offer. With a few of our tips and guides, you will be able to navigate the DeFi space unscathed, at least for most parts.

Read our blog posts to stay ahead of the curve and join our Telegram or Discord community to be among the first to get updates on the latest hacks and what we are up to.

About Lossless

Lossless is the world’s first DeFi hack mitigation tool for token creators. Apart from our known cyber security solutions and renowned professionals, the community also plays a role. With a tangible reward system, community members are also encouraged to explore new ways to detect hacks and fraudulent transactions.

Our protocol halts counterfeit transactions through various methods of fraud identification and automatically reverses any stolen tokens back to the original owner. Our solutions to the impending problems of cyber theft within the blockchain space are thorough and applicable within many protocols.

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