Could DeFi be a lie and destined to collapse one day?
DeFi or decentralized finance is gaining popularity all around the world. It refers to decentralized finance, which is based on blockchains, the technology that drives cryptocurrencies. There are many DeFi exchanges built on the Etherum blockchain where you can buy and sell cryptocurrencies.
Additionally, DeFi also offers a range of crypto products to the general public.
DeFi uses smart contracts to facilitate trading without the need for human intervention. In simple words, smart contracts are pieces of code that automatically execute a transaction on the blockchain.
As a result, crypto enthusiasts view DeFi as being more transparent than centralized systems. DeFi proponents also claim that the system is very fast and makes transactions happen in seconds.
The Growing Popularity of DeFi
People are becoming interested in DeFi due to its speed and supposedly low risks. New ICOs or initial coin offerings are now common events as days pass by. No wonder DeFi is now a $100 billion sector that attracts countless people worldwide.
Additionally, new blockchains are coming into the picture to give Ethereum a tough fight. Some, like Solana, claim to be the fastest in the world and far superior to Ethereum.
As a result, a lot of interest has gathered around DeFi. But is it really the future?
Could DeFi Be a Lie?
DeFi is not without its critics who have many questions about the technology. For example, the basic philosophy of DeFi is under constant attack.
Most DeFi ecosystems rely on the Ethereum blockchain. However, some people claim Ethereum is not entirely decentralized. They also cite several reasons for their opinion.
For example, at one time, 60% or more of Ethereum’s nodes ran on the cloud, especially Amazon Web Services (AWS).
Therefore, Ethereum has some degree of centralization based on its infrastructure.
Additionally, DeFi built on Ethereum is also not that fast. In the past, DeFi projects clogged the Ethereum network.
Moreover, DeFi suffers from fraud and operational risks. In some cases, the founders of an ICO dumped the project and ran away with the funding. Scammers can also take advantage of loopholes in smart contracts and rob investors.
The Way Ahead
DeFi involves risks similar to Wall Street. Therefore, crypto projects should be transparent about the risks and not hide them from the public.
Additionally, the drawbacks of Ethererum should not be a cause for concern. New blockchains are coming out every now and then. They are better than Ethererum in terms of performance and trying to create a decentralized system.
Moreover, innovative projects are acting as foundations for new tokens. People are trading millions of dollars every month and buying and selling cryptocurrency.
DeFi is not a lie. However, it is a very new technology and still in development. Therefore, it will need more time to transform into a foolproof system. However, changes are appearing, and bright minds are working to improve DeFi and make it truly universal. A time will come when everyone will be able to use DeFi with total confidence.