I tried to explain what DeFi is in comic strips.
I explained what DeFi is and how DeFi works.
DeFi or Decentralized Finance is a crypto way to answer the current issue. It is a peer-to-peer financial system contrary to a centralized financial system. The benefits of DeFi are transparent and open to all. However, a centralized financial system that is closed-door deals with barriers to screening out participants. DeFi is not one answer to all solutions, but it is one perspective about how the financial system can evolve. It is also a practical application of smart contracts to become an intermediary to replace institutions. However, the integrity of smart contract technology is arguable which gives developers sole power to control how financial operations are fulfilled.
DeFi has been portrayed as a potential viable financial investment. However, it does not operate as everyone wants it to become. It is an alternative to institutional operations in which whoever joins the DeFi requires financial background rather than solely relying on the technology itself. Retail investors who have zero investment experience are highly likely to lose their investments through DeFi at some point because of a lack of understanding of its financial fulfillment obligations.
You may neglect smart contracts embedded into DeFi. However, how smart contracts are created is a key point on each DeFi project. Yet, such technology has been hidden without possible revealing to users to understand their operation. It is a gray area yet will never be resolved as the details of such smart contracts can be seen as a business secret. As a result, users will never fully understand such financial products while paying high risks to join DeFi projects that bear high risks of losing their investments.
Of course, no one will deny the technology completely as the crypto space will evolve into more open-sourced projects in the future. We are likely to see more projects than are willing to share their codes and reveal their smart contracts for users to learn and help develop their financial future through DAOs. Or at least, we hope more and more projects will be more transparent in the future.
What Can DeFi Do
DeFi will not replace traditional finance but it will improve them. Implementing smart contracts can reduce operational costs in the long term. However, investors will always bear in mind risks in each DeFi project.
DeFi will bring potential disruption to the financial system. But financial security will be focused more on the future. It is essential to have secured smart contracts to prevent hacking incidents. Many projects were devastated because of hacking incidents. Once the DeFi was hacked, it lost its reputation and its ability to run smart contracts securely which is a crucial point for investors to watch. Thus, audit reports are very important to review prior to joining every DeFi project.
DeFi is one of the futures to disrupt the traditional financial system. However, it itself has many challenges in the future that users need to be aware of.
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