It's a system of financial services built on the blockchain that doesn't need a central company like a bank.
DeFi, or Decentralized Finance, is a Web3 movement that aims to create an open and transparent financial system using blockchain technology, removing the need for traditional intermediaries like banks and financial institutions.
For centuries, the global financial system has operated on a centralized model, often referred to as Traditional Finance (TradFi). This system is controlled by central authorities—banks, governments, and corporations—who act as trusted intermediaries for all financial transactions. While this model provides stability, it can also lead to high fees, slow transaction times, and limited access for those without a bank account.
DeFi was born out of a desire for a more accessible and efficient alternative. By using a public, decentralized blockchain, DeFi allows users to interact with financial services directly, peer-to-peer, without needing permission from a central authority. All of the rules and processes are automated through smart contracts, which are lines of code that execute automatically when certain conditions are met. This removes the "middleman," providing greater transparency, lower costs, and censorship resistance.
To get started in DeFi, all you need is a compatible wallet and an internet connection. Once your wallet is funded with cryptocurrency, you can begin interacting with a wide range of applications:
Lending & Borrowing: Platforms like Aave or Compound allow you to lend your crypto to others and earn interest, or to borrow crypto by providing your own assets as collateral. The process is managed by smart contracts, which automate the loan and repayment process.
Trading: Decentralized exchanges (DEXs) like Uniswap allow you to trade tokens directly from your wallet. Instead of an order book managed by a company, DEXs use liquidity pools to facilitate trades. These pools are funded by other users who provide liquidity in exchange for a portion of the trading fees, a practice known as yield farming.
DeFi represents a fundamental shift in the control of finance. It gives individuals full custody of their assets and the ability to interact with financial products on their own terms, 24/7. As it continues to evolve, the DeFi ecosystem is building new solutions that are more inclusive, transparent, and resilient than the traditional financial system it seeks to improve upon.
A digital form of a country's currency that is issued and controlled by the central bank.
An exchange run by a central company, like MaiCoin, that acts as a middleman for all trades.
This refers to financial services that are run by a central company, like a crypto exchange.
The ability to move cryptocurrencies and other data from one blockchain to another.
It's like a company run by code and managed by its members, with no single leader.
It's an app that runs on a blockchain instead of a central server, making it more resistant to censorship.
