Decentralized Finance

Demystifying Myths about Decentralized Finance (DeFi)

The conversation about the services offered in the finance industry has changed. Now, people want to have alternatives they can trust, and decentralized finance (DeFi) is the best. Defi platforms are created to help people access banking or financial services easily and more affordably. The main difference between traditional banks and Defi platforms is that the latter offers all services in a decentralized way. All the transactions are processed by nodes on the blockchain networks and smart contracts. 

While there is no doubt that Defi is a good thing, a lot of people are yet to join because of the misinformation they get. Well, it is time to separate facts from fiction. Keep reading as we demystify Defi-related myths and demonstrate why you should get involved. 

Defi Means the End of Banks 

This is a misconception. When cryptocurrencies hit the market in 2009, they became a source of speculation from finance experts. Indeed, this speculation has been one of the reasons governments and central banks warned their subjects against cryptos. However, the truth is now coming out, and the potential for blockchain is being appreciated. Blockchain-related products, such as Defi, are not threats. 

In November 2020, the International Monetary Fund (IMF) released a paper that captured the huge potential of Defi. One area that the IMF highlighted is Defi platforms’ potential to facilitate cross-border linkages. By reaching the unbanked populations, making it easy for businesses to operate, and completing transactions faster, the finance landscape can only get better.

The truth about Defi is that they are now emerging as important drivers in the industry. Many financial institutions are now making huge investments in crypto-related services. Take the example of Barclays. The bank is already working with startups in the blockchain niche to help it start using smart contracts. 

Decentralized finance will not decimate banks. Instead, banks are adopting it and could even flourish by taking advantage of blockchain technology

Defi Platforms are Used for Illegal Activities 

This is another misconception. The trustless nature of Defi and the entire blockchain network design make it attractive to all sorts of people. Well, this means that even criminals would no doubt want to use it because there is little or no background check. For example, about 2% of transfers done through cryptos in 2019 were related to illegal acts. However, you need to look at the whole picture to appreciate the benefits of Defi

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Today, most people are coming to Defi for positive reasons, and they are happy about it. Take the example of crypto loans. If you are unable to access a loan from traditional banks, it will be pretty easy to get the cash through a Defi platform. All that you need are several crypto coins to use as collateral. Therefore, we cannot conclude that a few transactions done by criminals on Defi qualify as tainting its image. There are so many good things associated with Defi that you should not miss. 

Defi Platforms are Risk-Free 

This is incorrect. There is no financial platform that does not come with some risks. In Defi platforms, the risk of hacking always looms. Many hackers are attracted to the large collection of coins in the pools. However, you can minimize this by identifying and working with Defi platforms that have better security. Other risks include the high volatility of crypto coins and dishonesty when it comes to sharing staking pool rewards. 

As you can see, most of the myths about Defi were created out of fear of the unknown because only limited information about Defi was available. Now, we know more, and the fact is that Defi platforms are reliable alternatives to banks. So, you can count on them for different financial services. Remember that to get the best services, you should always select the best Defi. Visit hi.com for all your crypto needs, including buying, selling, and earning from cryptos.

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