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DeFi explained

by Jagdish Kumar
September 1, 2021
in Global
Reading Time: 4 mins read
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Allowing people to connect by lending & borrowing money is an important feature DeFi offers to the citizens across the globe, with no middleman.

DeFi is a new-age solution for all who are still unbanked in the 21st century. It is a venture which requires no support from the government and is a truly peer-to-peer platform. 

According to 2018 World Bank estimates, over 20% of the world’s population lack access to banking services. One major reason is that most of the unbanked do not have documents like state-issued identity cards required for know-your-customers (KYC).


What is DeFi?

Decentralized Finance popularly known as DeFi are financial services with no central authority. They are controlled entirely by blockchain technology rather than intermediaries like banks, or any financial institutions. 

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It involves taking traditional elements of the financial system and replacing the middleman with a smart contract.

DeFi platforms allow people to lend or borrow funds, like you do from your banks, but without any banking authority. It also helps you to buy insurance, trade derivatives, trade assets, and do more. The most important thing is that it doesn’t require paperwork or a third party. 


Benefits of DeFi

DeFi is open to all, irrespective of income, race, wealth, culture or geographic location. You don’t need to apply with any bank/company to open a DeFi account. 

You just need to create a crypto wallet, which is available for free. You can get one from Klever App, which is currently available on Android & iOS.

Users remain anonymous and can get a wallet. You don’t need to provide a name, email address, telephone number, contact address, personal information or any documents. 

Once you have opened an account and have crypto assets in it, you can move it anytime, anywhere, without taking any permission. The transfers happen within minutes and you don’t pay any high transfer fees, only a nominal fee is charged as gas fee (Gas refers to the fee required to successfully conduct a transaction on the Ethereum network). 

The platform is very transparent, as everyone involved in the process can see the full set of transactions, as compared to banks, private financial companies that rarely provide any transparency in their process.


How does it work?

Users engage with DeFi via DApps (decentralized applications) built on top of the Ethereum blockchain. It is the world’s second-largest cryptocurrency platform and allows the building of other types of decentralized applications beyond simple transactions.

Let us look at the top DeFi applications that have become very popular. 

Decentralized exchanges are exchanges that operate without an intermediary. It is a hot type of exchange, which connects users directly so they can trade cryptocurrencies with one another without trusting an intermediary with their money.

DApps have become very popular today. It democratizes the lending ecosystem and provides decentralized platforms where borrowers and lenders participate in an open system. 

Lenders can earn interest on their crypto assets by loaning them out, while borrowers can access liquidity without selling off their assets. These decentralized platforms use smart contracts in place of intermediaries like banks. 

Yield farming is the process of locking up cryptocurrencies in exchange for a reward. It’s another popular space in DeFi today. Yield farmers stake popular coins like Ether, DAI, Tether and others. Users can stake their cryptocurrencies on Klever App and earn passive income at 10% annual percentage rate (apr).

Delivering value to millions of users, DeFi is still in the beginning stages of its evolution. It has grown into a complete ecosystem of applications and today has a total value locked in DeFi contracts of over $82 billion.  

Jagdish Kumar,

Klever Writer

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Jagdish Kumar

Jagdish Kumar

Reporting & writing on crypto & blockchain for the past few years. A content eagle, journalist & writer with a passion to explore new technologies that can change human lives. Joined Klever to make Crypto simple. Follow me on Twitter @TokenBharat or email me at jagdish@klever.io

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