Decentralization has become a hot topic for coding this year. While activity and volume in the DeFi room are still underdeveloped in popularity, this is starting to change as new protocols become available. According to the latest Consensys report, the number of banned and active Ether (ETH) users on DeFi platforms actually rose sharply after being “very stagnant” during the rest of the year due to the launch of the boat.

DeFi codes were also the subject of much controversy, as Bitcoin currencies crossed price tables week after week. In fact, the compound symbol increased by 233% during the first week of trading, while the Aave LEND symbol increased by 1000% in the last three months. As a result, there can be a clear comparison between decentralized and decentralized financing. Centralized systems have advantages and disadvantages, and perhaps even if DeFi is launched, both types of financial products and services will always be available to the masses.

Some of the advantages and disadvantages of each partner in the world of finance, its disadvantages and problems are discussed in more detail. Special attention will be paid to decentralized lending and borrowing, which is currently one of the most popular DeFi applications in terms of volume / cost bans, and for some reason has created a revolt over the broader DeFi concept.

What is traditional financing and financing?
DeFi is a set of blockchain-based financial services and products that mimic what people are used to in old financing, but do so without a central party providing the mentioned services. Instead, it is provided by other users who act as financial partners without intermediaries.

These financial products range from credit and joint lending services and decentralized exchanges to stable currencies, insurance, payment, custody services and more, but they are basically the first app to drive DeFi's popularity. According to John Jordan, communications director at DappRadar, DeFi protocols have the ability to learn, adapt and evolve from each other, which is one of the reasons why decentralized economics are moving so fast. He told Quintelgrave:

“Since DeFi works on an open and unauthorized open string, compatibility with dapps and tokens is a great advantage. The app can offer a new feature such as flash credits, and then it can be integrated into the product without asking permission. This compatibility was a big problem that causes the current explosion. “For yield farms, for example. ”

Services such as MakerDAO, Aave and Compound provide, among other things, lending and lending services offered by traditional banks, but with some differences – both good and bad. These credit and lending services are similar and even the central services they mimic; However, the internal functions of each project are often quite different from previous services.

Does DeFi work without central authority?
There are different types of credit and credit platforms in the DeFi room, and most of them use the Ethereum blockchain series. These projects use different strategies that allow users to borrow and lend to each other without sharing a central unit. This means that the definition of “know your customer” or paperwork is not necessary. Although less bureaucracy and control, it still provides a certain level of security for the lender and his money. Stanny Kolykhov, CEO of Aave, told Cointelegraph:

The biggest advantage of DeFi is that it is not eligible to participate (no KYC, no credit rating, etc.). The same rules apply to everyone, “unlimited liquidity” (you can access the market anywhere and anytime, if you have an Internet connection.), This does not apply to prison, so you have full control over your money, and you can use it at your discretion. ”

For example, Aave uses a merger strategy where lenders provide liquidity by inserting Ether or ERC-20 codes into a single contract. This allows you to earn interest or even use the money deposited as collateral to borrow an asset. As a result, users receive a short-term credit limit for stable currencies or other symbols without having to liquidate their assets.

On the other hand, MakerDAO allows users to buy their own stable Dai coin by blocking ETH, although users need to deposit more ether more than they can withdraw at a rate that can vary.

Source: CoinTelegraph

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