DeFi made headlines weeks ago with the theft of more than $600 million in cryptocurrency from the Poly Network.
Here are five things to know about DeFi.
- <li>DeFi stands for decentralized finance. It uses blockchains and cryptocurrencies to provide bank-like services such as saving, lending, borrowing and trading, without the use of intermediaries. Smart contracts replace brokers, stock exchanges, banks and other traditional financial institutions.</li><li>Most DeFi apps run on Ethereum’s blockchain. A smart contract executed on the blockchain enforces the rules of the deal. The risk associated with using a DeFi app is based on the technology. If the code fails or is hacked, a user could lose money.</li><li>Interest rates are better.</li><li>Many contracts have a precaution that states that they get something if a user does not repay. This is usually a hiding place of cryptocurrencies, but it would also be NFTs. As a lender, the volatility of these collateral is important to consider. It could be worth 150% of the loan at execution and 1% until the user requires it.</li><li>There is no bank manager to grant the account, there is no regulation and no external insurance. While there are versions of insurance within the DeFi systems, they all have the same risks as any DeFi app. There is also no government agency or FDIC to help when a user loses money.</li><li></li>
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