What Is DeFi And How It Is Useful In Bitcoin Black Ecosystem
What is DeFi?
In the blockchain community DeFi has become a trending topic. Unlike the decentralization of money through Bitcoin, DeFi is aiming for a broader approach to decentralizing the traditional financial industry in general. The core of the initiative is to open traditional financial services to all, providing less financial service ecosystem based on blockchain infrastructure with permission.
Definition of DeFi
“An ecosystem consisting of applications developed on top of publicly accessible ledgers, to allow permission less financial services.”
Broadly speaking, DeFi is an innovative effort to decentralize conventional core financial use cases on the blockchain such as trading, lending, savings and asset management. DeFi is protocol based on Decentralized Applications (dApps). It provides a peer-to – peer financial network by running those dApps on a blockchain. Every dApp can be combined with each other like lego build blocks. Smart contracts operate as connectors comparable to conventional systems with precisely defined APIs.
What are now the core benefits of DeFi?
DeFi is composed on top of a blockchain. The blockchain is often referred as a general layer of infrastructure, hence DeFi can be viewed as a cluster of applications in the second layer. This allows the DeFi to inherit the decentralization core property. It’s important to remember, this only applies if the blockchain is decentralized itself. If this pre-condition is fulfilled, the core benefits of opening finance are shared with the core benefits of blockchain:
True decentralization allows resistance to censorship, participation worldwide irrespective of social status and dispenses of trusted third parties.
Using blockchain as a technical platform permits reasonably fast and low-cost transactions / settlement, financial contract immutability, and contract automation.
In general, DeFi applications require the user to remain in control of the private keys. In the blockchain ecosystem this is referred to as non-custodial. Without a trusted third party the user is in complete control of the money.
Increased transparency of the ecosystems, and thus quality and market performance. Minimum risk to the principal agent, as asymmetric information is non-existent and a transparent protocol governs the personal interests.
DeFi favors network effects, as a lot of innovation is created by the specific combination of different projects in applications in layer 2 or even 3.
For example, one of the largest active DeFi contracts, without a bank account, without a third party, locks USD 10 million and the customer is always in possession of the underlying cryptocurrency.
In comparison to the mainstream financial sector, where massive resources are devoted to a trust-building mechanism that comes at the cost of strong centralization (e.g. too-big-too-fail banks), transparency (e.g. the 2007 crisis) and censorship / discrimination in a number of countries.
Also, this framework also struggles to keep up with the modern age: a cross-border transaction takes 3 working days on average and costs ~6.8 per cent fees.
How Decentralized Finance can be Useful for Bitcoin Black Platform
DeFi Lending and Borrowing
This is perhaps the most significant use of DeFi that can be very useful for providing crypto assets of Bitcoin Black Platform to lend and borrow. Bitcoin Black will provide users with loans without any intermediaries. Lending protocols are also in place which pay interest to users in stable coins and cryptocurrencies.
For now, the blockchains like EOS and Ethereum are the most popular ones for DeFi borrowing and lending.
DeFi Asset Management
DeFi asset management tools can be very useful for Bitcoin Black Platform as they can act as custodians of assets but are not engaged in any banking or commercial services. Asset management tools of DeFi provide wallets apps and other tools that help crypto holders manage their assets effectively.
While it may be difficult for new investors to set up wallets or make their way around the space (including diversifying their investments, finding exchanges, etc.), asset management tools help take any complexity out.
A derivative is a contract between two or more parties which depends on an underlying asset’s performance to get its value.
DeFi derivatives are very flexible and can be useful for the Bitcoin Black platform since their inherent smart contracts can issue automatically executed tokenized derivative contracts. In general, derivatives are used to protect investors from price fluctuations, and to speculate on an asset’s future performance.
The Future Of Bitcoin Black
Does the future of Bitcoin Black contain DeFi and technical advances? This is a decision that the Dev team needs to make to advance our project into the next level. Would the addition of higher technology ecosystem projects bring in the key players we need to advance? Only time will tell on the decisions we make as a team, but the interest in our project should tell us all that we are on the right track.
See you on the beaches of the world!!