DeFi: How Does It Work?

In the previous and first blog for this month’s topic on DeFi (Decentralized Finance), we talked about the basics of DeFi in the cryptocurrency world and what’s the impact on the present and future financial system. In case you missed it, read (here). Now onto the next round, this time we are peeling it off to know how DeFi works.

DeFi has gained huge attention in the crypto world. Fresh air for the industry despite asset prices that remain 75% lower than where they were in late 2017. From all the positive responses and popularity, let’s dive into it so we know how it actually works. As we mentioned before in our previous blog, when it was first founded in 2018, Decentralized Finance (DeFi) or “Open Finance” is a transparent financial system that allows several entities to hold a copy of a history of transactions.

So, How does it work?

DeFi is based on Smart Contracts, and it uses Blockchain technology which offers much more flexibility and transparency. For example, if you purchase an item with your credit card, a financial institution sits between you and the business, with control over the transaction. But in DeFi, it removes third parties from all kinds of transactions. That is one of the primary advantages and efficiencies of DeFi.

Initially, Bitcoin and Ethereum are based on DeFI. But there are a lot of other DeFi products that are dominating the DeFi market, such as lending platforms and Stablecoins. In the case of Stablecoins, Cryptocurrencies often experience fluctuations, which isn’t probably the best way for crypto entrepreneurs out there who want to know how much their money will be worth in the upcoming days. Stablecoins peg cryptocurrencies to non-crypto currencies, such as the U.S. dollar, to keep the price “stable”.

New Concepts in DeFi

In addition to the variety of DeFi has on its products, new concepts of DeFi are emerging to the surface as well. One of them is Yield Farming. Yield Farming is for those who want to take it up a notch by willing to take more risk, by scanning through various DeFi tokens in search of opportunities for larger returns. More about Yield Farming and other DeFi topics in our upcoming blogs.

Not to mention NOBI is also DeFi based. Where we offer users so they can join the DeFi market easily. Check out our new and latest feature: NOBI Savings. which we just launched a couple days back where you can earn high interest yet risk-free!

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