What Makes a DeFi Platform Credible?
Despite being around for several years, the DeFi space is still a mystery to many. New investors often wonder what makes one DeFi platform more credible than another one and what makes them credible in the first place. That’s exactly what we’re going to explain in this article.
However, to help you understand how legitimacy works in the DeFi sphere, we have to look at what CeFi credibility looks like. Read on.
What Makes CeFi Platforms Credible?
Suppose you want to use the services of a platform based on traditional and centralized finance. What would you do to check if the service is the right choice for you? The most likely scenario is that you would check for official certification and reviews from other people, including industry professionals. So here’s a list that we all need to pay attention to when it comes to checking the credibility of a CeFi platform.
- Overall reputation — First of all, we need to see what other people are saying about the platform. If a bank doesn’t have a good reputation and many agree on this, we will think twice about using its services.
- User and professional rating — There are many sites where users can rank businesses, including various CeFi products and services. Checking their overall ranking, including rankings from industry professionals, always pays off in the end.
- Official certifications from official regulatory bodies — Finance is highly regulated in all countries around the globe.
- Audits from independent companies — You need to check if the service is audited and, thereby, trustworthy.
- Security and history of security breaches — Like it or not, many platforms are under cyberattacks all the time, but some of them fend off the attackers much better than others.
DeFi Works a Bit Differently
DeFi adds another layer of credibility and trustworthiness, which is hard-coded in the underlying structure of DeFi protocols. Most of them are based on blockchain technology, which, by itself, is already credible and trusted by people around the world. Simply put, blockchain adds a layer of security that is next to impossible to breach. Decentralized services aren’t operated by a single entity but rather by a community, which makes them even more trustworthy.
But the real question is: is that enough? Even if they’re built on the blockchain, these DeFi protocols can still have some flaws that may be exploited by individuals or organizations that are part of them. Therefore, in addition to just trusting blockchain to do its part, we also need to check for other things as well.
Under “other things,” we mostly mean certificates and licenses. As the DeFi space is getting recognized in jurisdictions around the globe, many committees have been created to ensure the maximum security and trustworthiness of DeFi projects. On top of that, auditing companies and organizations nowadays also specialize in checking DeFi projects, ensuring they’re not doing anything illicit.
A DeFi project called Aurigami has been audited three times and has a clean record, which means it’s safe to use its services or even invest in it. That’s especially relevant for platforms such as Aurigami, which is an online crypto protocol for lending, borrowing, and earning interest.
Decentralized protocols are created to be community-operated, and that’s why we also cannot exclude the aspect of people reviewing DeFi protocols. Therefore, it’s always a good idea to check what other people are saying about the DeFi service you want to start using.
Final Thoughts: DeFi Platforms Will Always Have an Additional Layer of Credibility
The DeFi space is expanding rapidly, and millions of people are already using many DeFi protocols, as they consider them more useful and, after all, more credible. Whenever we want to check the credibility of a DeFi service, we need to pay attention to all aspects that we would usually check in a platform based on traditional finance, including audits, security, certificates, and more.
If all of these boxes are checked, we can always enjoy the additional layer added by the distributed ledger technology, which makes DeFi protocols even more credible and secure. After all, that’s one of the primary reasons why an increasing number of people are turning away from centralized and towards decentralized finance.
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice
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