Decentralized Finance (DeFi) is a blockchain-based form of finance that does not rely on central financial intermediaries, offering financial services like lending, borrowing, and trading through peer-to-peer networks.
Understanding Decentralized Finance
Decentralized Finance, or DeFi, marks a shift from traditional, centralized financial systems to peer-to-peer finance enabled by decentralized technologies built on the blockchain. DeFi encompasses a variety of financial applications in cryptocurrency or blockchain geared toward disrupting financial intermediaries.
Key Features of DeFi
- Peer-to-peer lending and borrowing
- Decentralized financial services, like insurance
- Stablecoins
- Staking and yield farming
- Decentralized exchanges (DEXs and AMMs)
DeFi versus Centralized Finance (CeFi)
Unlike centralized finance, where banks and other financial institutions hold sway, DeFi stands apart by allowing individuals to execute financial transactions directly with one another through smart contracts on the blockchain. This innovation offers greater accessibility, reduced reliance on middlemen, and operates continuously, around the clock.
Blockchain, Cryptocurrency, and DeFi: What’s the Difference?
Blockchain technology is the backbone of DeFi, providing a secure and transparent ledger for all transactions. Cryptocurrencies represent digital value and serve as the medium of exchange within the DeFi ecosystem. DeFi itself utilizes blockchain and cryptocurrencies to offer a full spectrum of financial services without the need for centralized control.