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![Defi: high-risk financial innovation experiments for you](https://fortunetelleroracle.com/online-marketing/public/index.php/upload/media/posts/2022-07/12/defi-high-risk-financial-innovation-experiments-for-you_1657610145-b.jpg)
Decentralized finance, called Defi Development vefor its acronym in English, is the new trend in the cryptocurrency industry. Since last year the term began to gain popularity to end up encompassing any financial application that works on Ethereum. Many of what were previously called decentralized applications, or Dapps for short, are now called Defi as a marketing strategy.
As its name suggests, it proposes applications that ensure that it does not have a single point of failure, as would a traditional financial firm. Even that anyone can use and launch them on Ethereum or another network of smart contracts. Now, a reality is that many of the applications are centralized in their founders, who have extensive control over their application. What is really valuable, in all this fashion, is that the conditions of the smart contracts are public on Ethereum or another platform, so all their movements can be observed, in a transparent way.
This new fashion has encouraged a wave of multiple complex financial applications , ranging from: creation of capital pools, where assets are concentrated to be used in other financial products; obtain loans, without having to follow a banking protocol; leverage services, capital requests to reinvest them in another asset; and other inventions using Ethereum smart contracts. It is impossible to deny that it is quite interesting how with a few lines of code they can recreate complex financial services for the whole world, which are generally managed by specialized and regulated stock exchange firms in different countries, with their corresponding regulatory limitations.
But the financial freedom that Defi Token Development is granting is only one side of the coin. All this freedom is not achieved for free, but these applications have a sum of risks that do not exist in traditional financial products and where all the responsibility for managing the funds falls on the users. Currently, it is a wild west where only the strongest survive, which in this case would be the most knowledgeable, best connected in the ecosystem and have the most funds.
Now, with all this I want to clarify that I do not consider all Defi a scam, or a scam as they say in the ecosystem, but I do keep my distance because of all the risks that exist when using one. Even so, I find them to be exciting financial experiments, since they are not simulations, they are real cases happening with valuable assets at stake. All this will surely leave good teachings for future innovations in finance. If I were an economist or had studied a career in finance, I would dedicate myself to studying some of these mechanisms in a formal way.
It must be admitted that one of the reasons that has promoted the flourishing of this entire Defi Development Company ecosystem is the absence of regulation. The best example of how regulation can kill all kinds of innovation is the case of Facebook's Libra, which has technically been reduced to almost a PayPal before it was born. So, as regulation is not something that is being taken into account by the creators of Defi -at least for now-, it is that they have had the freedom to create any type of financial application that comes to mind.
This has reached the point where even some lawyers who are in the crypto area see their work as pointless, because clearly these projects are breaking many financial regulations, but that has not stopped traders and developers; Rather, he ends up recommending that they become anonymous, avoid fraud, stay away from capital investors and continue developing and inventing at their leisure.
Something very clear in this new fashion is that there are people who are making a lot of money with this. Keep in mind that these are: app developers, Ethereum and bitcoin token whales, venture capitalists backing Defi launches, and investment firms that have entire teams working on risk management and looking for new profit opportunities in this lawless world.