Legacy mechanisms in the traditional financial system have proven outdated and incapable of adjusting to current consumer needs. Based on the bitcoin principles of P2P relationships and a secure underlying blockchain technology, DeFi pioneers -like LocalTrade-, have envisioned a revolution in the financial system where all services are offered low-cost, fairly and securely without any middlemen.

DeFi, short for Decentralized Finance, promises to bring about a fully decentralized financial system. In this scenario, transactions will be made through P2P relationships between users, without having to be authorized by banks or a central authority. This means that consumers can seamlessly access traditional financial services like loans and trading, which are offered by other users or companies through decentralized, blockchain-powered applications. 

From a user standpoint, this just makes sense as a natural evolution of a financial system dragged down by legacy technology, mechanisms and key players that haven’t been able to accordingly adjust to their needs.

As Peter Wall, CEO of global crypto mining company Argo Blockchain, said to Forbes: “The need for an accessible, transparent, and secure system has become increasingly apparent, with centralized entities and banks continuing to fail communities seeking trustworthy financial freedom. In theory, decentralized finance can offer improved transparency and more robust security while replacing many of the current outdated processes which can lead to a truly decentralized and democratized financial ecosystem.”

The Rise of DeFi Apps: The Case of LocalTrade

DeFi is an umbrella term, a series of interconnected technologies, ideas, and platforms in which users operate in a decentralized manner. In the same way that Uber enables self-employed drivers to get in touch with their riders, DeFi platforms establish the fundamental technology and services for their users to exploit.

A good example of how a DeFi platform works can be found on LocalTrade. LocalTrade is a widely recognized platform for trading cryptocurrencies — in exchange for other crypto or fiat currencies. Their history is tied with that of crypto, evolving alongside them and trying to stay ahead of the curve. They initially started as a crypto exchange, but they have steadily redoubled their efforts to become a key player in the burgeoning DeFi space.

That’s why they are building a complete finance ecosystem where they offer different services. They are hard at work to upgrade their initial exchange offerings to become a DEX (Decentralized Exchange), greatly improving the number of trading pairs to help further develop the space. Alongside that, they have introduced a decentralized multi-currency wallet; they have kickstarted the LocalTrade LaunchPad, a platform for launching cryptocurrency projects within their platform and are in the late stages of launching a yield farming protocol — the smart-contract which allows to route funds to various DeFi projects in order to receive rewards liquidity mining rewards.

Closing the gap between DeFi and the old system: The costly user entry point

One of the challenges that DeFi faces as a whole is the costly entry point for new users. Crypto is still unknown territory for many users driven by mixed messages from authorities, regulatory bodies and mass media.

“One of the main reasons why the wide public doesn’t recognize DeFi as an investment destination lies in an extremely complicated user journey. It takes a lot of technical knowledge and background in crypto to simply enter the sphere, and it takes even more to understand the intricacies and potential opportunities of decentralized finance. We address this issue by removing complexity from the equation and condensing the best DeFi opportunities in a unified, easy-to-use and secure product,” recently said LocalTrade CEO Aaron Yahalom.

It's hard to say when DeFi will go mainstream. Much of it depends on who finds it useful and why. Many DeFi projects are still too complex for beginners to understand. Stablecoins, one of the basic DeFi offerings, aren't as secure and reliable as they promised to be; and understanding the concept of money legos or yield harvesting is a whole different level.

However, that’s only a small part of what DeFi is set out to be. DeFi is about providing financial services we all know in a simpler, more transparent, and fairer way. Services for all levels of investors that range from everyday banking, insurance, loans and mortgages, to complicated contractual relationships and asset trading. 

That means that DeFi is also about updating traditional financial transactions: anything from payments, trading securities and insurance, to lending and borrowing is already happening in DeFi. It is also about giving users the freedom to operate in this space easily through their private crypto wallets. And through these wallets, they can operate independently from the largest cryptocurrency exchanges and give investors access to everything: from cryptocurrency to investing in DApps, such as blockchain-based games. It is about lending through smart contracts, investing in the right products through reliable data, and much more.

That’s exactly what LocalTrade wants to achieve. They strongly believe that by providing a technologically updated, user-friendly platform with extra security, they will be able to attract all users to the promising DeFi sphere. well as.

“There is a costly entry point for newcomers and beginner investors into the DeFi space right now. Complicated UX/UI, lack of trust and transparency and highly complex financial products are barriers that hold crypto and blockchain into going mainstream. At LocalTrade, our most immediate concern is actually closing those gaps by providing advanced functionality for traders, stellar customer service, greater transparency, and speedy withdrawals and deposits. We aim to promote a new vision of financial services by combining the transparency and high-yield potential of the DeFi sector with  AML-compliance and convenient fiat gateways of centralized exchanges. We believe that DeFi mass adoption can only happen if platforms make things easier for users,”  LocalTrade CEO Aaron Yahalom said.

Decentralization powered by blockchain and crypto

This Decentralized Finance is based on the principles of Bitcoin and Ethereum and securely powered by blockchain technology. In fact, the underlying principles of crypto and blockchain are the enablers of decentralization in finance.

In the current centralized financial system, all transactions — including user activities — are stored in a private ledger, owned and managed by a large financial institution. These only share that information with bigger authorities, if required to, fostering opacity and exclusivity. 

On the other hand, in a DeFi system, all transactions are recorded in the blockchain, which in essence is a distributed public ledger. This means all parties using a DeFi application have an identical copy of the public ledger, which records each and every transaction in encrypted code. That secures the system by providing users with anonymity, plus verification of payments and a record of asset ownership that’s (nearly) impossible to alter by fraudulent activity.

“The goal of DeFi is to reconstruct the banking system for the whole world in this open, permissionless way,” says Alex Pack, managing partner at Dragonfly Capital, a $100 million crypto fund, for Forbes.