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These days, if you mention that ‘decentralized finance (DeFi) is revolutionary’ you may get more than a couple of eye-rolls. 

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Yes, decentralized finance — the ‘catch-all’ term for financial apps built on a decentralized ledger (blockchain) — is impactful, but what can you *actually* do with DeFi, day-to-day? 

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Better yet, what advantages does it offer compared to traditional financial (TradFi)?\*

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Much more than a buzzword, DeFi offers the following real-world benefits.

## **1. You Control Your Money**

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One of [DeFi](https://hackernoon.com/tagged/defi)’s key value propositions is that it’s self-custodial: Sometimes referred to as non-custodial, self-custodial means that you, not a financial institution, hold your own money.

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Technically speaking, this means that you have unilateral control over your private keys — cryptography that allows you to access your funds, which exist on a blockchain like Bitcoin (BTC) or [Ethereum](https://hackernoon.com/tagged/ethereum) (ETH).

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By contrast, in traditional finance, the bank becomes the custodian of your funds. Though the bank is liable for the funds in your account, it can lend out [10 times](https://www.investopedia.com/articles/investing/022416/why-banks-dont-need-your-money-make-loans.asp) more money than it has in reserve.

## **2. Interest Rates are Typically Higher**

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DeFi typically offers higher rates of return than traditional financial products because it:

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1. **Removes the middleman**: DeFi allows parties to transact directly with each other by removing the financial institution necessary in traditional financial transactions.

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2. **Reduces overhead**: DeFi replaces a financial institution’s bureaucracy with software, aka smart contracts: blockchain-based code that self-executes when its criteria are met. By increasing capital efficiency, DeFi increases returns.

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3. **Introduces new financial opportunities**: Not only does DeFi simplify and automate existing financial mechanisms, but it also introduces new opportunities, e.g. a crowdfunded currency exchange or securing transactions on a blockchain ([staking](https://hackernoon.com/earning-passive-income-with-defi-staking-an-overview-4a1y3720)), both of which earn rewards.

## **3. Financial Products are Transparent**

Unlike traditional finance and centralized finance (CeFi) products, DeFi transactions and yield mechanisms are completely transparent. 

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As DeFi apps are open source and built on public blockchains, you can actually track what your money is doing on-chain and how your returns are generated.

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Compare this to CeFi (e.g. [cryptocurrency](https://hackernoon.com/tagged/cryptocurrency) interest platforms) and TradFi, neither of which provide insight into how funds are lent out and protected behind the scenes.

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CeFi and TradFi products require your absolute trust; DeFi is trustless.

## **4. DeFi Goes Beyond Crypto Investing**

Not only can DeFi offer higher returns than CeFi and TradFi, but its yields can also be non-speculative.

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Investing in cryptocurrency or stocks is speculative by nature: People invest when they believe that an asset’s value will increase, at which point they will be able to sell at a profit.

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Though speculation does exist in DeFi (e.g. cryptocurrency and [NFTs](https://hackernoon.com/tagged/nft)), decentralized finance can also offer monotonically (constantly) increasing returns.

 \n For example, [DeFi’s equivalent of a savings account](https://gelt.finance/defi/defi-savings-account/), which generates interest through DeFi lending environments, offers consistent yields from borrowers at a rate several times higher than traditional saving accounts. \n 

## **5. Blockchain Security is Decentralized**

As a decentralized ledger of transactions stored on computers all around the world that confirm (or reject) transactions, blockchain makes it next to impossible to alter a record after the fact.

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By contrast, CeFi stores user data in centralized databases that are only as safe as their security, the exact nature of which is almost always unknown to users. In other words, centralization = a central point of failure.

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By contrast, most DeFi products are built on Ethereum, the world’s leading development blockchain that secures tens of billions in US dollars.

## How to Get Started with DeFi

DeFi can involve creating accounts on multiple platforms, doing several expensive currency conversions, and figuring out which DeFi protocols you want to use.

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If you want to get started the easy way, you can use something like Gelt High-Yield Savings. 

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With non-custodial and transparent interest generation processes, Gelt keeps true to the DeFi values mentioned above while offering user-friendly access to high-yields, plus fund cover.

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**Traditional finance (TradFi)**: The established financial sector, including financial institutions (banks, credit card companies, credit unions…) and conventional financial products (loans, savings accounts, credit cards).

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**Centralized finance (CeFi)**: Non-transparent applications that allow users to interact with cryptocurrency and DeFi (e.g. a cryptocurrency exchange, cryptocurrency interest platforms).

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CeFi applications are typically custodial, meaning that they hold users’ cryptocurrency keys, and through them, users’ cryptocurrency. Related reading: [“DeFi vs. CeFi: A Detailed Comparison”](https://hackernoon.com/defi-vs-cefi-a-detailed-comparison-ce5u33ek)

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***Disclaimer****\*: Any financial or saving strategy involves putting your funds at risk. This article is intended for informational purposes only and does not constitute investment advice. For financial advice, speak with a licensed professional.\**

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