Decentralized finance, or “DeFi,” is a new financial technology. It is made up of encrypted distributed ledgers, which are similar to what cryptocurrencies use, with this app it makes trading and profiting in cryptocurrencies accessible to everybody.
In the United States, the Federal Reserve and the Securities and Exchange Commission set the rules for centralized financial institutions like banks and brokerages (SEC). People depend on these institutions to access capital and financial services directly. People have more power in DeFi’s peer-to-peer digital exchanges, which is bad for the current centralized financial system.
Stablecoins were made because DeFi needs stable money for it to grow. Moser told Cointelegraph that stablecoins were a big part of why DeFi became so well-known.
Moser said that centralization and decentralization, which seem to go against each other in digital currencies, might help DeFi. Sometimes centralization is bad for DeFi, but not always.
Moser says a CBDC would be safer for DeFi than a redeemable stablecoin because central bank money “does not contain counterparty risk.” Neither Tether nor USD Coin is like this. This is because a CBDC is not a stable, redeemable coin. He said, “A central bank can’t fail because it makes money that can’t be redeemed.”
The Swiss National Bank (SNB) and the blockchain company Cypherium released a report on blockchain technology and CBDC on September 26. Right after the report came out, Moser said what he thought about it. The research shows that CBDCs may be able to help stabilize the bitcoin economy, which includes the DeFi sector.
The article talked about what Francois Villeroy de Galhau, the head of the Banque de France, had said in recent days. In these remarks, Governor Villeroy de Galhau said that CBDC is “not about the big brother of central banks threatening the free world of decentralized finance.” He said that the main purpose of CBDCs would be to “give more tools to help make DeFi work and last longer.”
Sky Guo, the CEO of Cypherum, is sure that DeFi and CBDC technologies are “destined” to work together. What he said was:
“DeFi can do everything on its own and could free CBDC from the limits humans have put on it. We might expect that hundreds of billions of dollars will be put into this market, that big institutions will join, and that real-world asset will move on-chain because DeFi uses CBDC.
The research that the SNB is doing shows that this is not the first time a central bank has thought about how CBDCs and DeFi might be related.
As was said in a previous article, most people don’t like the idea of CBDC because it would invade their privacy. Many people call these kinds of projects “slavecoins.” Central banks haven’t shown much support for cryptocurrencies yet, so it’s still unclear if they want to help spread decentralized finance.
The news comes when central European banks are actively testing CBDC for use in international retail and money transfer transactions. On September 28, the central banks of Sweden, Norway, and Israel put out a new study about how CBDC is used in international transactions.
How you can use DeFi
P2P (peer-to-peer) transactions are one of the main ideas behind decentralized finance (DeFi). A P2P DeFi transaction is when two people agree to trade cryptocurrencies for goods or services without the help of a third party.
P2P lending is a way for people in DeFi who need a loan to get one. A person gets a loan when a matching algorithm finds peers who meet the lender’s criteria. A decentralized application, or dApp, is used to make P2P payments. All dApps follow the same protocol inside the blockchain.
Using DeFi lets, you do things like:
Accessibility: Anyone with internet access can use a DeFi platform, and there are no restrictions on where transactions can take place. One benefit of DeFi is that any two people can talk directly about interest rates and lend money to each other over DeFi networks for little cost and high-interest rates.
Security and transparency: Anyone can look at smart contracts and records of transactions on a blockchain, but your identity will stay secret. Blockchains can’t be changed in any way because they can’t be changed.