Decentralized Finance, or DeFi for short, is a new way of providing financial services to the masses, minus the middleman in many cases.
Think of traditional financial services like money exchange and transfers, savings and lending, but now they’re online and digital, global and easily transferrable.
They’re also programmable, allowing them to be interconnected to other services via different protocols, all existing on the blockchain.
It’s a seismic shift away from the closed-off and centralized financial world to a more open-sourced and decentralized world of services.
Decentralized Finance also comes with several benefits not realized by traditional financial markets.
- Transparency – blockchains are public ledgers, and they share records across a decentralized network, providing better transparency of data and who interacts with that data
- Immutability – blockchain records are secure, permanent, they can’t be removed, and they can’t be altered once verified and added to the blockchain
- Being Permissionless – blockchains that are permissionless are open to everybody with an Internet connection and a crypto wallet. No banks are necessary. No middlemen get in the way of transacting.
- Custody – users of DeFi products and services can take custody of their assets and not rely on a 3rd party to do so.
- Open-source – Open-source software and collaboration breeds trust and better quality code, ultimately leading to a better user experience
- Smart contracts – These can be designed in a custom fashion to work automatically, in a trusted fashion, anonymously
DeFi takes traditional financial services that are often difficult for regular folks to take advantage of and puts those services into the palm of their hands, using blockchain technology and smart contracts.