DEFI 101
Decentralized Finance, or DeFi for short, is an emerging field that is quickly revolutionizing the financial industry.
If you're curious about how DeFi works and the benefits that it offers, keep reading!
What is DeFi?
DeFi stands for decentralized finance, which is a term used to describe a new financial system that is being built on top of blockchain technology.
In traditional finance, banks, and other financial institutions act as intermediaries, providing services such as lending, borrowing, and trading. In DeFi, however, these services are provided directly by smart contracts on a blockchain, without the need for intermediaries.
DeFi applications are built on top of decentralized networks such as Ethereum, which is a blockchain that allows developers to create smart contracts. Smart contracts are self-executing contracts with the terms of the agreement between buyer and seller being directly written into lines of code. This means that the rules of the contract are enforced automatically, without the need for a third party.
What makes up DeFi?
Decentralized Finance is a broad term that encompasses various financial applications and protocols that are built on top of blockchain technology. There are several key elements that makeup DeFi:
Decentralization: DeFi applications are built on decentralized networks, such as Ethereum, and Cardano. So this means that there is no central point of control, and the system is more resistant to censorship and control by governments or other centralized authorities.
Smart contracts: DeFi protocols are powered by smart contracts, which are self-executing contracts with the terms of the agreement written into code.
Open source: DeFi protocols are typically open source, meaning that anyone can access and contribute to the code.
Interoperability: Many DeFi protocols are designed to be interoperable, meaning they can communicate & interact with other protocols and applications, creating a more connected, engaging, and interactive ecosystem.
Non-custodial: DeFi protocols are often non-custodial, meaning that users retain control of their assets and are not required to trust a third party with their funds.
Accessibility: Anyone with an internet connection can access and use DeFi applications. This means that DeFi systems are more accessible and inclusive than traditional financial systems, which often require users to meet certain eligibility criteria or get permission from a third party.
Transparency: Transactions on a blockchain are publicly visible, so anyone can verify the details of a transaction, including the amount and the parties involved. This means that the transparent nature of DeFi is more resistant to fraud and corruption than traditional financial systems.
By leveraging blockchain technology, DeFi is creating a new financial system that is decentralized, open, and transparent. With Decentralized Finance, anyone with an internet connection can access and use financial services without the need for intermediaries. From decentralized exchanges and lending platforms to stablecoins, Marketplaces, and more. DeFi is offering new and innovative ways to interact with financial markets and each other.