What are DeFi Exchanges & How Do They Work?

The world of digital finance is on the rise and is constantly evolving, improving, and adapting to the needs of the user. But what does that mean for the future of the industry?

On the face of it, it seems like this will be a largely positive thing on the whole; users will find the functionality that they need along with the added bonus of enhanced security and further use cases over an extended period of time to study and evaluate.

Here at BCB Group, our experts think that digital finance, and specifically decentralised finance, are something to get involved with as soon as possible. The earlier you become familiar with this technology, the earlier you’ll be able to utilise it to your advantage. If you need to learn a little more about DeFi before you start to integrate it into your operations, our guide is here to help.

Read on below to learn more about decentralised finance, DeFi exchanges, and how they work. Alternatively, you can head over to the BCB Group Insights page where we’ll be keeping you up to date with the latest news, developments, and technology in the world of cryptocurrency!

Understanding Decentralised Finance

Let’s start by ensuring that we’ve got the basics in order.

DeFi, or decentralised finance, is an anonymous system that allows financial transactions to be completed without the use or need of any intermediary, third-party, or governing body. What this means is that the entire network is far more secure; for a change in ownership to show on the record, it’ll need to be made across all of the controlling nodes in that network, rather than in just one location. This reduces the risk of fraud significantly..

In short, decentralised finance removes the need for an intermediary presence in your transactions, reducing fees, speeding up the process and creating a safer environment in which to send or receive funds.

DeFi vs Traditional Finance: What are the Differences?

Now that we’ve got a clearer idea of what exactly DeFi is, we need to take a look at the differences that separate it from traditional finance and banking. These differences may seem subtle in certain places, however, the impact that these differences could have on your business is huge.

For us, we think that the best way to look at the big differences between DeFi and traditional finance is to take a look at the problems that exist and the problems that decentralised finance is aiming to solve. In theory, these will show the fundamental weak points that traditional finance has and the potential strengths that DeFi could bring to the table.

Issue #1 – You aren’t in possession of your own money

A big issue with traditional finance is that your money is not in your possession. It’s held by the banks and other companies, removing your control over how protected your wealth is at any given moment. The frustrating, worrying factors within this are obvious but without knowledge of a different type of finance that you could utilise, it may feel like there are no other options. .

Due to the unique way that DeFi operates, you’ll be put back in control of your finances; you’ll be in possession of your funds, tokens, and coins, and you’ll have full control over where the money goes and how it’s spent.

Issue #2 – Transferring funds isn’t quick enough

If you’ve ever tried to transfer funds through a traditional medium, you’ll have already seen first-hand that the manual process that’s utilised is not efficient, leaving funds in clearing for days on end. This essentially means that neither party involved in the transaction receives the funds for a long period, with the money stuck in limbo.

With DeFi, the middle-man is removed, meaning transactions can process automatically in a matter of minutes – this faster settlement rate means you can be more flexible and reactive in the way that you operate, with less time spent waiting for your money to clear.

Issue #3 – You’re restricted by opening hours with traditional finance

If it’s not the settlement time that’s holding you back with traditional finance, it’s probably the restrictive operating hours that are in place. Banks and traditional finance companies need employees on the clock to keep things running smoothly – this doesn’t just increase their running costs, but also means that their services essentially halt when employees need to take a break. If you’re looking to operate at unsociable hours, this can be a massive problem to overcome.

Alternatively, with DeFi, you’ll be able to access markets around the world at any time of the day. There’s no off switch and the markets are constantly rolling, allowing you to function where you want when you want.

DeFi Use Cases – How Can You Utilise Decentralised Finance?

So, how do you use DeFi to your advantage and are there any current use cases that you can start to adopt already?

Put simply, yes the use cases do already exist and it’s really easy to start taking advantage of these!

Send money over the world in a flash

Ethereum, as a blockchain, is designed to send transactions in a safe, secure manner across the world. Ethereum, like Bitcoin, makes transmitting money all over the world as simple as sending an email. Simply provide your recipient’s ENS name or their wallet account address, and your money will be sent directly to them in minutes, where possible.

A wallet is required to send and receive payments, but it’s incredibly easy to set these up and once created, you’ll have access to it forever.

Borrowing money is safer and easier than ever

There are two types of borrowing money from decentralised sources.

A borrower will borrow directly from a specific lender in a peer-to-peer arrangement.

Pool-based lending is when lenders contribute funds (liquidity) to a pool from which borrowers can borrow.

Today, everything about lending and borrowing money centres around the people involved. Before lending, banks need to know if you’re likely to repay a loan.

Decentralised lending operates without requiring either participant to reveal their identity. Instead, the borrower must put up collateral, which will be immediately transferred to the lender if the loan is not repaid. NFTs are even accepted as collateral by some lenders. NFTs are a deed to a one-of-a-kind item, such as a painting.

This allows you to borrow money without having to submit any personal information or undergo a credit check.


The team here at BCB Group has a wealth of experience in the crypto and fintech industries, giving us a unique opportunity to be able to support our clients from every angle. If you’re interested in getting our insight into decentralised finance and working with us to help maximise your productivity in the DeFi markets, fill out our contact form or give us a call today!

BCB Group comprises BCB Prime Services Ltd (UK), BCB Payments Ltd (UK), BCB Digital Ltd (UK) and BCB Prime Services (Switzerland) LLC. BCB Payments Ltd is regulated by the Financial Conduct Authority, no. 807377, under the Payment Services Regulations 2017 as an Authorised Payment Institution. BCB Prime Services (Switzerland) LLC, a company incorporated under the laws of the Swiss Confederation in the canton of Neuchâtel with business identification number CHE-415.135.958, is an SRO member of VQF, an officially recognized self-regulatory organization (SRO) according to the Swiss Anti-Money Laundering Act. This update: 14 Oct 2020.

The information contained in this document should not be relied upon by investors or any other persons to make financial decisions. It is gathered from various sources and should not be construed as guidance. The information contained herein is for informational purposes only and should not be construed as an offer, solicitation of an offer, or an inducement to buy or sell digital assets or any equivalents or any security or investment product of any kind either generally or in any jurisdiction where the offer or sale is not permitted. The views expressed in this document about the markets, market participants and/or digital assets accurately reflect the views of BCB Group. While opinions stated are honestly held, they are not guarantees, should not be relied on and are subject to change. The information or opinions provided should not be taken as specific advice on the merits of any investment decision. This document may contain statements about expected or anticipated future events and financial results that are forward-looking in nature and, as a result, are subject to certain risks and uncertainties, such as general economic, market and business conditions, new legislation and regulatory actions, competitive and general economic factors and conditions and the occurrence of unexpected events. Past performance of the digital asset markets or markets in their derivative instruments is not a viable indication of future performance with actual results possibly differing materially from those stated herein. We will not be responsible for any losses incurred by a client as a result of decisions made based on any information provided.

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