Understand important points about Defi

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Decentralized finance is a natural evolution of the concepts of cryptocurrency and smart-contract, allowing disintermediation of a strictly regulated phenomenon such as that of traditional finance.

Defi is essentially a form of finance based on blockchain, it is a collective term that groups different products and services that follow the financial products offered by the markets in a decentralized and deregulated form guaranteed by the blockchain.

We are not just talking about financial instruments in the classic sense of the term, Defi also includes instruments distant from the world of finance commonly understood, such as lotteries and loans between individuals.

Furthermore, insurance projects on Cardano Blockchain Defi are widespread, aimed above all at protecting investors from programming risks that could entail an economic loss for those who invest in these instruments.

Then some tools are closer to traditional financial ones, such as the purchase and sale of cryptocurrencies, tokens, crowdfunding projects, flash loans, which are the loans without the need to reveal the identities of lender and borrowerand numerous other projects.

The advantage of these tools, in addition to the low costs and extreme privacy they can offer, consists in the possibility of predetermining the behaviour of the tool for example by selling or buying securities or tokens based on the achievement of certain values ​​by them, entrusting this choice to ” oracles “, or third-party services that provide reliable data to smart-contracts negotiated on the blockchain.

Defi protocols allow, in essence, to program our money, by implementing codes that execute complex orders on our trades similar to how it happens, on traded markets, in some trading platforms.

The lack of safeguards

Decentralized finance is a natural evolution of the concepts of cryptocurrency and smart-contract, allowing disintermediation of a strictly regulated phenomenon such as that of traditional finance.

The problems are evident, however, and start from the principle that this rigid regulation of the various sectors of traditional finance is not accidental and is aimed at protecting investors as well as those who receive investments so that the rules of the game are not distorted to the detriment of a company or of one or more investors.

The lack of these rules makes possible uncontrolled and uncontrollable speculative mechanisms, just as it makes it difficult to “go back” and provide protection to individuals, projects or financed companies that have suffered scams to their detriment that have altered their returns.

Furthermore, for those less accustomed to technological or financial mechanisms, there is always the risk of falling victim to pyramid schemes that shield themselves from the apparent security of a blockchain.