Hey boss welcome to the channel those who've been in the crypto world for some
time now will definitely have heard of the term defy or as elon musk put it in
a tweet don't defy d5 so what is this defy that we should not be defying well
that's exactly what i'll be getting into in this video and if you're new to the
channel then hit the subscribe button below for more life-changing content
first defy is short for decentralized finance defy is a system by which
financial products become available on a public decentralized blockchain network
now what that means is that those financial products become open to anyone
to make use of rather than going through middlemen like banks or brokerages as
opposed to brokerage accounts or banks a government approved id proof of address
or social security number will not be needed to use defy in my introduction i
purposely admitted one very important element of the d5 system and that is d5
refers to a system by which software written on blockchains empower sellers
buyers borrowers and lenders to interact in a peer-to-peer mode or via a strictly
software-based middleman as opposed to the traditional company or institution
facilitating a transaction by now you can see why this would be a game changer
and also why it probably wouldn't be a good idea to defy it as musk said as you
can imagine several technologies and protocols are used to achieve the goal
of decentralization for instance a decentralized system might comprise of a
mix of open source technologies commercial and blockchain software the
smart contracts that automate the terms of contracts between sellers and buyers
or borrowers and lenders enable these financial products regardless of the
platform or technology that's used defy systems are designed to remove the
intermediaries between the parties to a transaction and as much as the amount of
money in trading tokens locked into smart contracts and d5's ecosystem is
constantly on the rise defy remains a startup industry within infrastructure
that's still in construction the oversight and regulations available are
quite minimal and even absent at times however it must be said that the use of
technology and financial services is not something new most transactions in banks
or other financial service companies are done with the help of technology
nowadays however the involvement of technology has been limited to just
facilitating transactions organizations stuff to struggle with navigating
jurisdiction laws different standards and competing financial markets to allow
a transaction with the loads of common public blockchains and software
protocols for building them d5 places technology as a key part of transactions
in the financial services industry as it turns out a lot of people place defy in
the same domain as cryptocurrencies in blockchain however its range is very
much wider to grasp a good stronghold of its understanding and the thought
processes that led to its developments it's important to understand the current
state of the financial ecosystem now the modern financial infrastructure is based
on the hub and spoke model that is the major economic centers of activities
such as london and new york act as operating centers for the financial
services industry they also influence economic activity of the branches or
financial powers such as mumbai or milan that aren't necessarily as globally
important as the centers but still serve as nerve centers for their respective
economies economic prosperity or struggle radiates from the hubs down to
the rest of the economy this interdependency model is repeated in the
functioning of global financial service corporations so they construct a main
headquarter and then own local branches investments or partnerships around the
world the prevalence of their operations implies that the company itself is
subject to a stronghold of laws and regulations in all of its financial
jurisdictions the reach of these financial institutions has made them
systematically important for maintaining the balance of the global economy and
necessary for creating new infrastructural financial services now
in as much as this model worked fairly well in the last century the financial
crisis and more evidently the great recession revealed its foundational
flaws balance sheet problems for several big financial institutions have had a
domino effect on the collapse of economies sending people on the path of
a global recession so here is decentralized finance which uses
technology to break down centralized models providing financial services to
everyone everywhere regardless of age ethnicity or cultural identity d5
applications and services are centered on public blockchain and they either
replicate existing offers built on the rails of tech standards or offer
innovative services tailored to the d5 ecosystem also d5 furnishes users with
more control over their money through personal wallets and trading services
that explicitly care about individual users more than institutions hence it is
a more human-centric way to carry out financial transactions without the need
for middlemen more and more individuals wake up to it and the success of the
blockchain innovation is a motivation so now that we have a pretty good idea of
what d5 is let's take a look at some of its components broadly speaking d5
components are similar to the ones employed by our current financial
ecosystems in that they require stable currencies and a wide range of uses
defy's components take the shape of stable funds and services like lending
services and crypto exchanges smart contracts offer the framework for the
operation of its applications because they encode the activities and
conditions that are vital to the operation of these services for instance
the smart contract code has a certain code used to determine the precise terms
and conditions of a loan between persons if specific terms and conditions are not
met the collateral might get liquidated all this is done through a specific code
not manually from a bank or a similar institution moving on the components of
d5 belong to a software stack each layer's elements are intended to perform
a specific duty in building the system composition is a defining feature of the
stack because the components belonging to each layer can be put together to
form a d5 application now the d5 layers that make up the system are settlement
protocol application and aggregate layers first is the settlement layer
which is known as layer 0 due to the fact that it's the base layer on which
other transactions are built it compromises the public blockchain and
its parent digital currency transactions occurring on defy apps are settled with
the help of the cryptocurrency which may or may not get traded on public markets
one example of a settlement layer is ethereum along with its ether token that
can be traded as a crypto the settlement layer also sometimes comes in tokenized
asset versions like the us dollar or tokens that are digital representations
of real world assets the second layer in d5 is protocol which represents the
rules and standards written to manage certain tasks and activities similar to
real world institutions this is a set of principles that all participants in any
particular industry have agreed upon as a requisite to being an industry member
d5 protocols are interoperable and by that i mean multiple entities can use
them at the same time to build this layer also provides liquidity to the d5
ecosystem one example of this is synthetics which is an ethereum
derivatives trading protocol the synthetics is used to make synthetic
versions of real-world assets the third layer here is the application layer and
as the name suggests this is where consumer-oriented applications are
located these apps abstract basic protocols into simpler customer focused
services these are the landing services and decentralized cryptocurrency
exchanges you know today last but not least is the aggregation layer which
comprises aggregators that connect different apps to provide a service to
the investors for instance the egg creators can enable seamless transfer of
money between different financial instruments to maximize returns now
while the future appears bright for defy let's not forget that it is still in the
early evolutionary stages the total value concluded in the decentralized
finance contracts is over 41 billion dollars as of march 2021. the overall
locked value was calculated by multiplying all tokens in the protocol
and their us dollar value while this is very promising it's important to
remember that many t5 tokens don't have enough liquidity and high market trading
volumes another of its problems is that this ecosystem is still riddled with
infrastructure hackers and crashes there's also the case of ramp and fraud
and the rapidly evolving defy infrastructure there is what is referred
to as defy rug withdrawals whereby hackers spend protocol on assets and
investors become unable to trade and of course there's the open nature of the
decentralized financial ecosystem which can pose problems for existing financial
rules the current financial laws were founded on the idea of separate
financial jurisdictions each having its own rule book and regulations for
instance who takes the blame for financial crime happening across borders
is it the applications or the protocols let's also not forget the challenge
posed by smart contracts besides the fact that from the success of bitcoin d5
is one clear example of the thesis of code is law what do we mean here well
code is law refers to the law being a set of rules written and enforced
through an immutable code therefore smart contract algorithms are coded with
the necessary constructs as well as terms of usage for conducting
transactions however software systems might have problems functioning due to a
wide range of factors one instance is the following what if incorrect inputs
results in a system crash who's responsible for such an event so this
particular issue amongst others will have to be resolved before d5 becomes a
mainstream system used by everyone it's important to note that in order to
create a security centralized financial system you'll need a stable currency
ether for example is quite volatile so it like many other coins cannot be used
a stablecoin is virtual money that corresponds to the value of its fiat
money counterpart die for example is a decentralized stable currency aligned to
the us dollar that means a one dot equals one us dollar hence die is stable
which would make it an ideal currency for decentralized financing now let's
look closely at the benefits of d5 systems beyond online payments after all
money transfers are just one aspect of our basic centralized financial system
if you look closely defy seems to replace every aspect like loans
exchanges savings plans and insurance before we go into the benefits of d5
it's key to note that ethereum smart contracts are what allow these
decentralized services to exist and also operate securely and fairly firstly
people can access loans within minutes of applying through decentralized
finance this can be done without having to pass through a restrictive and
complicated process this works thanks to compound which is an ethereum based
application facilitating decentralized peer-to-peer borrowing and lending this
tool automatically connects borrowers with lenders and autonomously manages
loans through smart contracts this is the origin of what is termed yield
farming this simply means anyone can borrow their cryptocurrencies and also
earn interest individuals can also through compound deposit their
cryptocurrencies collateral in order to borrow fiat money against it there's
also the dex which is short for decentralized exchange this enables us
to buy sell and trade virtual money in conclusion there's a lot of work to be
done before the d5 system is good to go but before then people have to
understand that the current system has its flaws and decentralized finance is
the future for those interested in learning more about defying the future
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