What is Decentralized Finance?

The financial industry is undergoing a period of foundational change, much of which has been brought about by new types of financial technology (FinTech). One of the most groundbreaking sectors of FinTech is blockchain technology. Decentralized Finance (DeFi) is facilitating entirely new financial products and services that can reduce reliance on legacy gatekeepers and traditional finance industry stakeholders who have been known to abuse their power.

What is DeFi? In the most basic sense, DeFi is an open financial ecosystem of apps (dApps) that run on top of blockchain technology. The goal is to replace middlemen in traditional financial systems (like lending, borrowing, derivatives, and exchange) with automation. DeFi refers to financial services and applications that use blockchain technology and often smart contracts, which make them automated and trustless (decentralized). By using decentralized protocols and smart contracts, DeFi can offer a wide range of financial products and services without the need for centralized intermediaries. This means that users can interact with DeFi applications directly, without having to go through a bank or other financial institution.

The majority of DeFi solutions function without the use of custodians. This implies that they do not keep your money in the same way a bank does. Users may utilize any number of financial instruments (DeFi lending, DeFi borrowing, DeFi staking, and more) on their own terms instead of depending on centralized exchanges or systems and remove their funds at any time if they choose to. Users can access and manage their DeFi funds in real time through a mobile wallet or a DeFi application on their computer or mobile device, which provides them significant control over their investment decisions.

One of the most important characteristics of DeFi is that it is open and accessible to anyone with an Internet connection. By its very nature, DeFi is also censorship-resistant because there is no central point of control. This means that financial services built on DeFi protocols can be used by anyone, regardless of their location or economic status. Anyone can be either a user, a liquidity provider, or both.