DeFi: Pros and Cons

What is DeFi?

DeFi is an acronym for decentralized finance. In layman's terms, it stands for self-custody finance. Unlike traditional finance, where a company, bank, or fund is in charge of your money, no one but you has access to it in DeFi. Payments, loans, trades, investments, insurance, and asset management are all common services provided by DeFi platforms.

The Advantages of DeFi

• Transactions are carried out in real-time
• DeFi is both permissive and inclusive
• Transactions are transparent
• Users can keep possession of their assets
• DeFi data is tamper-resistant, secure, and auditable
• Many DeFi protocols are open source

The Risks of DeFi

• The collateral requirements are stringent
• Inadequate consumer protection
• DeFi technology is in its infancy
• Hackers pose a risk
• Private key requirements

References

[1] Insider, 'DeFi: The peer-to-peer financial system based primarily on Ethereum
' (online, 2022) <https://www.businessinsider.com/personal-finance/what-is-defi?r=US&IR=T>

[2] Vistra, 'Decentralised finance: Understanding the benefits, risks and challenges of DeFi
' (online, 2022) <https://www.vistra.com/insights/decentralised-finance-understanding-benefits-risks-and-challenges-defi>