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If you’ve had even half an eye on the cryptocurrency space in 2020, then you can’t have missed the surge of news stories and emerging projects around DeFi. Short for decentralized finance, the proponents of this segment hail it as a revolutionary new financial system in which anyone can become a borrower, lender, speculator or investor using decentralized smart contract protocols.
It’s certainly true that there are no barriers to entry. Unlike a traditional financial setup where users would have to overcome several KYC barriers to open a bank account, request a loan or start trading stocks, decentralized finance is unregulated and, for the most part, free of any restrictions. And it’s not just users who benefit. Anyone with programming skills, or the ability to procure them, can put their entrepreneurial skills to work by setting up a decentralized application and start issuing financial instruments on blockchain technology.
It sounds easy enough in principle. However, before entrepreneurs rush out and start building their own DeFi applications, or start researching their first DeFi investment, there are several considerations worth taking into account.
1. Existing infrastructure can’t necessarily cope with market volatility
Flagship DeFi project