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DeFi can deliver a better experience and return than traditional finance – here’s how it’s done

If I say “1775” to you, what comes to mind? If they had just asked me, I would have given no answer; nevertheless, it is one of the years in human history that is circled in red. Just this year, Hamburger Ersparungkasse, the first bank in the modern sense.

Since then, the banking system has come a long way: but from a tool that allowed development seen in the last three hundred years, it has now become thick-skinned, slow and often costly. In a world running at a thousand miles per hour, the ubiquity of financial services and endless bureaucratic times sounds paradoxical; If you’ve ever had to ask for a loan, you know what I’m talking about. This is where DeFi comes to our aid, a technology that is still new but is already in sight of all major banking institutions.

Before I continue, I want to dispel a myth: DeFi will not eliminate the banking system, but over time it will create alternatives and a faster, more accessible and more transparent system.

And the credit world is one of those that will benefit most from the arrival of DeFi. already today it takes five minutes and three clicks to get a loanand have the opportunity to implement advanced strategies to generate passive income.

Let’s try an example: Let’s say $1 of ETH is worth $1,000 and we believe the price will drop in the near future. Therefore, we can do the following:

  1. We are depositing a $10,000 stablecoin that will act as collateral;
  2. We borrow $5 ETH or $5,000 representing our debt;
  3. We sell our 5ETH dollars for $5,000 of the same steblecoin we use as collateral.

At this point, if our hypothesis is correct, we are ready to make excellent profits. In fact, if ETH$’s value drops to $500 after a few days, it means: Even our $5 ETH debt has a dollar value of only $2,500 ($5 ETH x 500).

Since the debt is in $ETH, we will need to redeem them with the stablecoin from the sale of the same $ETH borrowed earlier. Result in $2,500 profit.

As you can see, this is a fairly simple strategy, but it has the great advantage that it can be completed in a few minutes, with full autonomy and without any bureaucracy. The potential of this type of platform is endless, there are multiple strategies: all you need to understand is that you can use your own cryptocurrencies to get a loan, and in this case, the individual user decides how to deposit the received money. Some people use them to increase their exposure to a particular asset, some to earn passive income, or some to invest in real estate. There is no limit to what can be done, the important thing is that we will have to repay our debt to solve our crypto and that The same debt can be automatically liquidated if the value of the collateral falls below the safety threshold..

Since 2020, the birth year of DeFi, the volume managed by these platforms has grown steadily and to date, they manage nearly $14 billion in collateral: a figure that may seem large, but represents only a sliver of what it could be.

There are several reasons why such solutions in DeFi can offer better returns and an overall experience: Most importantly, absence of intermediaries that allow to reduce costs and make the process more transparent. Unlike traditional finance, DeFi does not rely on centralized third-party entities, but instead relies on computer code and algorithms (smart contracts) that allow it to manage everything with complete autonomy.

In conclusion, it should always be remembered that DeFi is an experimental technology that offers solutions for improvement in various aspects, but still brings risks that cannot be ignored. The most important thing among them is always make sure the platform you use is reliable: It’s always a good practice to check if we have any doubts. Our advice is to trust the leading and largest volumes platforms in the industry, especially if you are a beginner.

Alberto Cuculachi is an entrepreneur, popularizer and university professor in Marketing and Business Development. He has been following the blockchain world since 2013 and founded his YouTube channel DeFi Talks in 2021. It has reached more than half a million people in more than 100 different countries through its channels in the past year. Today, he is engaged in creating useful educational content and tools to make the world of crypto and DeFi accessible to all.

Alessio Vilmercati is a 22-year-old investor and DeFi enthusiast with a Business and Management degree. In 2022, he obtained his Blockchain Technology & Management certificate at the Blockchain Management School in Rome. Predominantly in the world of DeFi, Alessio devotes himself to reviewing dApps every day, looking for new opportunities every day. As an open supporter of this technology and its future application in the traditional world, DeFi Talks collaborates with the YouTube channel.

Federico Chironi is a 23-year-old trader and DeFi enthusiast with a Business Administration degree; He then chose to continue his education with a Master’s degree in Blockchain Technology and Management at the Blockchain Management School in 2021. He has been studying and investing in the blockchain world, especially in the DeFi sector, since 2020. Decentralized Finance, which will bring it in the coming years, has recently been doing outreach activities on the subject in cooperation with the YouTube channel DeFi Talks.

Luigi Travaglini is a popularizer and technical advisor in the cryptocurrency industry. He intersects with the crypto world between 2014 and 2015, then becomes passionate and never breaks himself off. Combining his academic career with a long technical study in the field of blockchain, he started to provide training and assistance services in 2018.

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