What is DeFi and How Is It Different from Traditional Finance? Is It Another Scam That I Should Know About?

in Project HOPE4 years ago (edited)

DeFi- Decentralised Finance is another fud like ICO.

I would request you to forget every information that you’ve gathered about DeFi. I promise you to explain the most advance fundamentals in a layman term. So get ready to dig deep into it.

My elder brother, Sam, is a man who has no access to a bank account. He wants to lend money. He came and asked me to meet the bank manager so that I could solve his problem. I have done this several times for him. I keep a good credit rating with the banks. It is easier to get money, but the process is very cumbersome and expensive.

I had a different plan for this time. Recently I came to know about decentralised finance and its one of the applications; borrowing and lending service. I could borrow money, and that too without getting worried about credit ratings, bank account or any boring third party.

But DeFi terms were getting complex. I needed to know the way out of this, so I researched about DeFi. There were some concerns about DeFi space that I started with; these were as follow-

  1. On what basis am I allowed to borrow money?
  2. Can I borrow from any money market protocol?
  3. What is the period to return the borrowed money?
  4. What are interest rates?
  5. What if I am not able to pay?

After a few clicks on the web, I was ready to face-off with DeFi terminologies,and trust me you do not need to know all of these. I've tried to keep it short and still worthy. Let me answer the above questions order-wise:


I was allowed to borrow based on my crypto assets. Most of the major crypto assets are collateral in the lending and borrowing platforms. Investopedia says “Collateral is an item of value used to secure a loan”. These collaterals vary from platform to platform. Bitcoin(BTC) and Ethereum(ETH) are the most popular crypto assets to back up your loan. I chose ether as the collateral to borrow $1000.
How many Etherium?– Nine. It was an instant and hassle-free process on the Nexo Platform.

I strongly believe Etherium 2.0 has very strong fundamentals. I want to hold it until it doesn’t cross $1200/ether.

So with DeFi, I figured it out how not to sell my valuable assets for daily needs. I am an investor so I know these assets are going to increase in price, but my needs remain constant.


There were two important parameters that I look into before choosing Nexo as my borrowing partner– Security auditing and project’s reputation.

Security auditing is one of the most important steps before choosing your needed service's partner in the DeFi ecosystem. A good DeFi project must be audited by reputable security auditors like Certik et.c. Nexo is audited by the Callsito Network and you can find details here.


There is no specific period to return the money, but sooner is better to save interest. I am liable to pay 5.9 % per annum (T&C: 10% of the principal amount must be staked in NEXO). These Interest rates depend on various lending platforms. Make sure to check t&c.

If you are thinking to borrow fiat/ stable tokens, and you want to compare interest rates: See here.


I understand life doesn’t always work out as planned. If I don’t pay back, I lose my collateral. :-/

This was only one side of the story. What if I have excessive money?
What can I earn lending my crypto assets?

Yes, you can earn from 5 to 20% by lending money to the borrower. DeFi ecosystem connects lenders and borrowers. The interest paid is distributed among lenders participating in the platform for maintaining the liquidity. It is an outstanding way of passive income. We never get high-interest rates in the traditional banking systems. Surprisingly,these banks impose high fees to every member using Xyz services. This is the time to replace banks altogether. Did I sound too crazy?


Let's talk a little more about the subject.

Did you notice there is no middle man/ agent in DeFi: lending and borrowing ecosystem?
It is open finance which open doors for Staking, Cross-Border and Micro-payments, DEX and Tokenisation (Security Tokens).

We will discuss other applications sometime, but if I conclude it won’t be wrong to say, "DeFi is an effective solution to address two most important problems- Unequal Access to Finance and Financial censorship."

Before I wrap up this discussion I would like to attract your attention towards risk involved in the DeFi ecosystem: Money Laundering ( Remember BitConnect ), Hacking (Recent being on dForce ecosystem protocol- $25M ) and variable interest rates. It is still a new space. I would recommend you to do your research and keep your funds very safe.

@hash-tag is rigid about speaking truth in spirituality, technology and relationships. He is an Ambivert who is studying to dissolve the self. He feels happiness in little things. Feel free to share his work.


  1. DeFi Pulse (Screenshot)
  2. Aave: Lending and Borrowing Platform
  3. Nexo: Instant Credit
 4 years ago  

Dear @hash-tag

Solid summary what DeFi is about. It seem that there is much hype around DeFi those days. Just like there was so much hype and hopes around STO in 2019. Wouldn't you agree?

One can only hope, that this time around there will be more to that than just a short term hype.

Enjoy your weekend, upvoted already.
Yours, Piotr

I certainly know that this is a hype, but it is also an essential use-case of blockchain tech. I was discussing it with @vlemon in one of the thread how the mature trader is fearful because there is so much greed in the street. As quoted by Mr. Warren Buffet,

When they are fearful, be greedy.
When they are greedy, be fuckin fearful

Of course, he didn't use the f-word and I also didn't want to, but I have learned a lesson to only invest in the projects with Strong Fundamentals+ Active Team and effective token economics.

Thank you for an upvote, and I wish for your great weekend.


 4 years ago  

I'm glad to see how responsive you are @hash-tag

Cheers :)

Thanks for your entry! You are not crazy to think that DeFi may one day replace the finance we know of. There is a certain beauty in DeFi's permissionless system. Cutting out the middlemen also make things faster and cheaper.

Decentralized blockchains as well as DeFi are still at its infancy. Just imagine when this system becomes mature, how would it change the entire financial landscape? 🙂

Yes, the landscape is in the process of building. What a time to live!

Personally, I am more intereted in Financial-Inclusion of every person on the planet earth.

This was a really interesting article with no extras just straight up facts and opinions. Beautiful one. Resteemed!!!

Feel free to share on your social media channels so that they come to know about Hive. Thank you for resteeming.

Hello @hash-tag

Thank you for posting within our hive.

Please spare few minutes and read how project.hope is organized and learn about our economy.

That would help you understand more our goals and how are we trying to achieve them. Hopefully you will join our community and become strong part of it :)

Do you use telegram or discord? If you do then join our server and give me a shout. I would gladly share with you goals of our community and introduce to others from our team.

Our discord server: https://discord.gg/uWMJTaW

@project.hope team,

it would be my pleasure to connect to the hearts of this community. I am regretful to tell you that I don't use discord. Make sure to send me your telegram channel.

Thank you for accepting me with a very warm welcome message!


 4 years ago  

Hi @hash-tag

Drop me a message via telegram: crypto_piotr

i wonder if there is any particular reason why you don't use Discord? I found it initially very complicated, however in long term - that's where majority of Steemit users are.

Cheers, Piotr

Ah! I am active on twitter and telegram. I feel it pretty easy to use. I was on discord but I don't prefer it because of it's cumbersome UI. I would try once again, but it takes a hell lot of energy to remain active everywhere.

You know I shared this post on Twitter and tagged NEXO(A Money lending protocol). They must have read the post , and one of the outsiders connect with me after reading about it. Now, he is curious to know more about Hive.

That is the beauty of Twitter. Telegram is wonderful for one to one as well as group conversation.

Well, I might change my view point about Discord. I think I haven't used it properly.

 4 years ago  

How can I find you on Telegram?

Perhaps you can add me already? You can find me as: @crypto_piotr

 4 years ago  

Dear @hash-tag

Is there any way to contact you? Do you use Discord by any chance? I would love to learn more about your experience with DeFi and also to invite you to become part of our Project.hope community.

Consider joining our discord server: https://discord.gg/uWMJTaW
I will DM you right away.


I am glad to know about you and @Project.hope I shall be soon contacting you in the telegram.