Why is DeFi Different?

Why is DeFi Different?

DeFi, that is, decentralized finance, has some fundamental differences compared to classical finance. The reason for these differences comes from the philosophies of the actors who founded it and the search for solutions to the problems of classical finance. We will look at these features in turn.

  • Open-source

Perhaps one of the most critical features of Defi is that it has adopted the open-source philosophy. Open source, in essence, means the production and distribution of the software without any licensing or patents.

This is actually an ancient formation. The reaction of companies such as Microsoft and Oracle, which were once technological giants, to sell the software they developed thousands of times through licensing, is the result of the combination of the philosophy that the information is open and that it will increase as it is shared. The crypto world has adopted this philosophy from the very beginning with Bitcoin.

We can summarize its benefits in the following two main areas:

  • The Need for Security and Trust

Classical finance generally consists of closed software. This means that the solutions developed in general are closed to the outside of the software. The customer usually uses the software, does not know what is in it, because he is unaware of the risks. After all, if there is a problem, he thinks that there are huge financial institutions in front of him, these institutions are supervised by legal authorities, and he will be compensated.

There are no large institutions and offices providing services in DeFi. It’s just software in this world that is in front of the customer. Of course, there are teams, but these teams do not have any responsibility towards the customer. Even if it is a team in some cases, the members of the team hide their identities under different pseudonyms.

In such a case, who will the customer trust? This is where DeFi’s open-source feature comes to the rescue. Because the source codes of the software are open and obvious. In this way, anyone can see and examine what is inside the software as they wish.

Of course, end users cannot be expected to understand these source codes. Instead, these softwares are externally audited by the developer team, while other independent companies examine the codes and write reports. In addition, large funds investing in such companies now employ code developers and examine the software in detail.

We saw the most recent example of this in the discovery of a bug in the code of Sushi, one of DeFi’s biggest protocols. Noticing the error in the software, the employee of the fund called Paradigm immediately contacted the Sushi developer team and the problem was resolved within hours, preventing millions of dollars of customer money from being stolen. The Sushi team then announced that it gave a full 1 million USD reward to the person who noticed the mistake.

  • Rapid Development

Another advantage of open source is the efficient use of resources. Because, thanks to open source, there is no need to ‘rediscover America’ every time while developing software.

Startups can quickly copy the source code of products working in this field and used by customers and devote their energies to developing new innovative features.

In addition, startups can develop more products with fewer resources. In classical systems, startups that needed human resources due to the need for development in the early stages would seek financing to meet this need, and they would ‘lose’ a significant portion of the resulting added value to the venture capitals that provided this financing. Crypto world startups, on the other hand, have started to share the added value they have created with the community as the need for human resources has decreased. Therefore, individual users who invest in startups in the crypto world through token supply have become serious income.

What are the disadvantages of Defi?

Copying and creating a new product is the easy part of Defi. The real challenge is to establish a community that will use, develop and spread this product to large segments. The way to do this is to constantly make new developments. Also, you have to be fast. In this way, dizzyingly new products are emerging in the crypto world. This ultimately benefits the customer.

SEE ALSO: How To Buy And Sell Bitcoin Anonymously

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Daura Gwem

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