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DeFi: From the Birth of Banking to Decentralized Finance

  • Author

    Coinhunt CC

  • Reading time

    5 min read

  • Published

    5/1/2022

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Banks are profit-oriented economic institutions that facilitate the flow of surplus funds to deficits. Developments in the banking sector may have either positive or negative effects on the economy. This makes banks significant factors of economic growth.


You can see the general definition of the banking system above. The first examples of the banking system date back to 3500 BC. Banking-like transactions were seen in Sumerians, Babylonians, and Ancient Greece. Since the historical process; the fact that banks are centralized and money is under the control of someone has been a problem for bank customers and investors. Thanks to DeFi, everyone has started to take control of their money. In this article, we will provide detailed information about Decentralized Finance.

 

What Is The Word DeFi?

 

DeFi is a general abbreviation for all decentralized financial transactions. It is formed by the abbreviation of the words De (Decentralized) and Fi (Finance). In short, it is all of the financial structures that are not dependent on the control and supervision of any authority.


DeFi can be considered a very comprehensive economy model. It's not just money transfer; borrowing, lending, trading on decentralized exchanges, insurance transactions, marketplaces, smart contracts.

 

“As a matter of fact, DeFi is a trust system formed by the combination of mathematics and technology. ''

 

Why Do We Need DeFi?

 

Cryptocurrencies emerged with the slogan of financial freedom. If we were to create a slogan for DeFi, it would definitely be "the beginning of a democratic financial revolution". Under current conditions, people in many parts of the world cannot access financial services. That's why it needs DeFi. Let's take a look at the reasons why DeFi is preferred.


The costs of traditional financial transactions are high: The commission fees paid in international money transfers increase as the amount of money increases. Cryptocurrency transfers via DeFi are sent with very low commission fees. Some blockchains even provide free money transfers.


There are more than 2 Billion people in the world who cannot access financial services: Banks generally do not provide services to places with low populations. Because the bank's branch expenses are less than the profit it will earn. Thanks to DeFi, all people can easily access financial services.


Anyone with internet access can carry out their money transactions from anywhere: Thanks to DeFi and cryptocurrencies, people can transfer money to anywhere in the world in a short time without the need for a bank branch. You just need internet access.


People want their money to be in their control: banks today operate as commercial institutions. Like any business, they can also make losses. In such a case, this loss may be reflected to the customers. People don't want to lose their money because of economic crises or other people's faults.


Confidence in banks is gradually decreasing: After the Mortgage Crisis in the USA between 2008 and 2012, many banks were closed and people became victims. This financial crisis experienced at that time affected the whole world. These and similar events have reduced people's trust in the banking system.


People prefer to keep their financial transactions confidential: All transactions made in banks are recorded. These records are shared with state authorities when requested. Although the main purpose is only to transfer money, people may prefer to keep their transactions confidential. Because questioning the source of money or taxation are two secrets that people want to hide sometimes.

Transactions made on DeFi cannot be interfered with: Imagine that you have a credit debt and have difficulty paying it. As soon as your debt is forwarded to the enforcement office, they can block all your bank accounts. However, this is not the case with DeFi.


Interactions between users have started without any authority control: When you want to get a loan, you have to pay the interest rate determined by the bank. However, in the decentralized financial sector, users can borrow and lend among themselves anonymously.


It provided the opportunity to raise funds for new projects that could not find capital: Today, you need some money as capital to start any project. If you say to get a loan from the bank for the initial investment, you must have other assets that you need to show as collateral. What if you don't own any assets? That's when your project ends before it begins. You can raise funds for your project from community members with the support of DeFi

 

What is the Reason for the Universal Interest in DeFi Project?

 

After the 2008-2012 crisis which we mentioned above, people's trust in the entire banking system collapsed. It has been understood that banks and central authorities can also be affected by the mistakes made and this mistake can have very serious consequences. Unlimited printing of money by some countries has led to manipulations on an international scale. This manipulation has put some countries in an economically difficult situation.


After 2009, cryptocurrencies started to shine in this crisis environment. People's interest in a decentralized financial structure has increased day by day. Blockchain and DeFi have liberated people financially. People can control their own large amounts of money without any intermediary institution.


As of today, the total volume of the DeFi ecosystem is around 123 billion dollars.

Top DeFi Projects by Market Capitalization

 

According to current market data, there are 526 DeFi projects in total. The data below illustrates the top 10 DeFi projects in the cryptocurrency ecosystem according to market data of 26.02.2022.



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