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Decentralized Finance: goals and technologies

15 June 2022

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The Blockchain, as a technology, has enabled a sudden change of perspective in managing financial flows by bringing in vast amounts of liquidity from not only large investors but also the retail sector.

One of the key features of blockchain technology and its applications is the ability to target an audience without needing a bank account or email. The web3 allows users to access it by simply creating a wallet and holding their access keys.

Permissionless and decentralized blockchain technology aims to counter the centralising systems that have presented several barriers, especially in the financial sector.

An ecosystem whose architecture is structured on finance protocols built on smart contracts, i.e., more or less complex software that draws on a linear logic of the if-this-then type, has found its natural application in this scenario.

Smart Contracts work similarly to the coffee machine. Instead of inserting a coin or key, with Smart Contracts an escrow account is generated from which, upon delivery of the good or service (ex. coffee), the corresponding amount will be deducted, concluding a purchase and sale contract in an automated manner.

Decentralized finance (or DeFi), thanks to the complex development of Smart Contracts, aims to simplify traditional financial dynamics by offering solutions ranging from peer-2-peer currency exchange to trading via savings activities, yield farming and access to credit through loans secured by collateral, all without going through an intermediary whether it be a broker, a bank or even a centralized Exchange.

Conclusions

The possibilities offered by emerging technologies are growing in number, and blockchain guarantees innovative formulas and new forms of development that in the financial sector translate into greater accessibility, opening up an unexplored world for a large segment of the population.

It is a complex world, built on calculations and automations that by its very nature presents a high-risk index, but which, with the proper precautions, can be a game-changer to flank and complement traditionally understood finance.

Necessary to proceed with caution, building one's own educational and experiential background, but with a firm will accept the change and innovation that historically contributed to that evolutionary process that constitutes man's eternal quest.

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