Decentralized finance is also known to be DeFi that is developed to shift from the traditional or centralized financial systems. You may all be aware of the traditional financial system that has a central authority to manage your finances. Whereas decentralized finance runs of the decentralized system of Cardano Blockchain powered by the code. When you choose a traditional banking system, then the bank or financial institution acts as an intermediary. They will decide the funds and they come in high-interest rates.
The decentralized finance allows the borrowers to directly connect with the investors. Also, it comes in low-interest rates. A smart contract is developed that is basically a self-executing contract. It ensures accuracy and carries out transactions between two parties without any intermediaries. Below are the uses of smart contracts that you should know.
Financial borrowing and lending:
Smart contracts make it easy for both a borrowers and investors. There are many cases that people do not qualify for the traditional finance system. They can use this decentralized finance system. Smart contracts lock in all the required details of the transaction. Everything is stored and maintained in a distributed blockchain ledger.
A decentralized finance system allows peer-to-peer transactions between two parties easily. One could make transactions from anywhere that helps to avoid the high transaction costs. Smart contracts are more useful to make the process of transactions seamless without any intermediaries’ involvement.
The cryptocurrencies value is increasing due to its increased demands that are not possible for everyone to buy cryptocurrencies. So, the investors consider buying a fraction of cryptocurrencies and becoming the owner. To maintain ownership one requires a smart contract. The cardano smart contracts help one to maintain the exact ownership. Also, there are several platforms that help the users to raise funds and they launch an IDO to attract funds. This attracts new investors, and they buy the tokens.
On the public Cardano blockchain, every transaction is verified by other users with the help of smart contracts. The transparency provides rich data analysis for the users. DeFi and Cardano protocols are built with open source code so anyone could view and audit. Unlike the traditional finance system, DeFi is permissionless and anyone could access it easily. Thus, smart contracts and DeFi are working to change the complete traditional finance system making it easy for entrepreneurs and investors.