DeFi Definition
Decentralized Finance, or DeFi, refers to the blockchain-based form of finance that does not rely on central financial intermediaries such as brokerages, exchanges, or banks to offer traditional financial instruments. It leverages the power of blockchain and decentralized networks to create an open-source, permissionless, and transparent financial service ecosystem.
DeFi Key Points
- DeFi is an abbreviation for “Decentralized Finance”.
- It represents a broad category of financial applications that are being developed on top of blockchain platforms.
- It seeks to create a financial system that is open to everyone and minimizes the need to trust and rely on central authorities.
- Technologies like cryptocurrencies and smart contracts compose the backbone of DeFi.
What is DeFi?
DeFi, in its rawest form, is an effort to decentralize core traditional financial services. By leveraging blockchain technology and the nature of decentralization, it presents an entirely new world of possibilities in the financial sector, such as open lending, trading on decentralized platforms, yield farming, and more.
Why is DeFi Important?
DeFi is an important and significant step because it extends the power of blockchain from simple value transfer to complex financial use cases. By creating a decentralized environment, DeFi opens up financial services to anyone with an internet connection and eliminates the need of intermediaries.
Where is DeFi Used?
DeFi applications are primarily built on the Ethereum blockchain, benefiting from Ethereum’s mature and well-developed platform. However, it’s also seen on other blockchains. People use DeFi services for activities like lending and borrowing, long-term investing, yield farming, and speculation.
Who Can Use DeFi?
DeFi is accessible to anyone with a smartphone or computer with internet access. It’s available worldwide, with no restrictions based on location, identity, or status. It’s particularly relevant to those who are unbanked or underbanked by traditional financial systems.
How Does DeFi Work?
DeFi primarily operates on smart contracts, which are self-executing contracts with the terms of the agreement directly written into lines of code. These smart contracts power DeFi applications, making them transparent, trustless, and immune to censorship. In turn, participants maintain control over their assets and interact with these applications directly, without any intermediaries.
