Decentralized finance, or DeFi, uses blockchain technology to enable financial transactions without the traditional apparatus of banks, exchanges, and government institutions. In this episode of Motley Fool Live, recorded on Feb. 3, Abhishek Singh, the co-founder and CEO of Comdex, tells Fool.com contributor Rachel Warren what advantages DeFi has over centralized finance (CeFi).

Abhishek Singh: One of the primary differences, of course, in my opinion, but why did DeFi becomes so huge? In my opinion, it's primarily about transparency. There was the source in the system where whenever you deposit money somewhere, even if it's a bank, for that matter, it's difficult for you to track what really happens with the money. You can see many of the frauds happening in the brokerage industry because brokers will take in money and then not disclose what they were doing with the capital and just trading against the user. If the trade goes bust, then the broker house collapses. This distress was only happening because of lack of transparency. Once you put in all the things that happened behind on chain, so that it's possible for everyone that is where decentralized finance comes into play. Transparency being the biggest thing. Secondly, there is no access barriers in DeFi. Even if you had one, if you open of course money last year now, but you can access any of the DeFi platforms and use them, and of course anyone can create protocols on top of it also. This way accessibility and transparency became the main thing. The thing about overcollateralization also. If your trade gets liquidated, there is always a pool that you know that pool exists and money will be drawn from it. This transparency is what led to the DeFi boom that we've seen in the last one and a half, two years. In terms of centralized finance, it's done very well because it's very efficient. It's the reason why everybody uses it. All the traders, etc., used to getting 10x, 20x leverage on the market. Everything works efficiently in terms of the money flows itself. Of course, there are challenges when you're doing jurisdictional transfers and that's a slow process. SWIFT is trying to do more things about making that much more seamless and doing things faster. It's finance at the end of the day, but in a centralized world a few people end up controlling it, the banks decide whatever the interest rate has to be, nothing is community governed. There's no technical voting on what the parameters of the economy should be. This gives the DeFi user power, the community gets the power to determine what the parameters of the ecosystem should be, and when it's community driven, it's generally for everyone's benefit, but when it's driven by small set of individuals it becomes challenging. These are few differences between centralized finance and decentralized finance. We feel as more people become more aware of how exactly those structures are working, decentralized finance will see a lot more adoption than it currently is.

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Source Fool.com