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DeFi is short for Decentralized Finance. DeFi is the ecosystem of fintech apps built on top of blockchain protocols and therefore decentralized in nature. Most DeFi apps are built on top of the Ethereum blockchain, but as new blockchain protocols gain popularity, the DeFi ecosystem is likely to expand.
Traditional finance operates in a centralized manner with complex procedures, intermediaries, and checks and balances in place. Traditional finance has high fees associated with it due to procedural complexity and the number of parties involved, even for reasonably simple transactions. Traditional finance also leaves out a good portion of the world’s population, referred to as the “unbanked.” These users aren’t served by conventional finance because the cost of serving these users is higher than what could potentially be earned from them in the form of transaction fees.
What is DeFi
DeFi is a movement built on top of blockchain technology. DeFi aims to create an inclusive, decentralized, permissionless, censor-proof, transparent and open-source financial system available to anyone with a cryptocurrency wallet, smart device and internet connection. In DeFi systems, users interact with the network using DApps and peer-to-peer networks. Unlike traditional finance in DeFi systems, users maintain complete control over their assets. Once users deposit their money on the platform, they decide how to manage their investments using smart contracts rather than trusting human intermediaries to do the job.
DeFi applications turn financial rules and procedures into smart contracts and code. This helps to automate the processes and make them accessible to everyone on the platform. By turning the rules into code embedded within smart contracts, users can automatically execute a wide range of processes with the click of a button, which would be expensive to do and require manual supervision in traditional finance.
Smart contracts make the transactions faster, cheaper, easier, and more secure for all parties involved.
All you need to know about Decentralized Finance (DeFi)
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