DeFi is a blanket term for financial services on public blockchains, primarily Ethereum. With DeFi, you can do most of the things that banks support, but it’s faster and paperwork or a third party are not needed. DeFi is global, peer-to-peer and open to all.
Picture yourself in a world where anyone could create transparent, fair and efficient financial products, making banks, large finance companies and insurance companies secondary, or even completely useless.
That is what DeFi is all about. The idea behind DeFi is to convert the centralized financial structures in existence into decentralized structures, without trusted third parties, executed on smart contracts within a blockchain, where a written and unalterable record of each action performed is transparently reflected.
We are now living the first years of this financial trend, but the impact is enormous. It is already shaping alternative versions of almost all existing financial products.
DeFi transactions are recorded in databases on several different computers. Those records are secured with cryptography and all the computers keep tabs on each other to make sure it hasn’t been altered. This way, all actions performed on the platform are also visible and immutably recorded on the blockchain. Since everyone involved can see the full set of transactions, DeFi is completely transparent.
But not only that, DeFi is also pseudonymous. This means you don’t need to provide your name, ID, email address, or any personal information. You just need to have a wallet and you’ll be able to lend out your crypto to earn interest, get a loan, trade your crypto assets using peer-to-peer transactions or create a savings account for the future.
The volume of trading cryptocurrencies and money locked in smart contracts in DeFi’s ecosystem has been growing steadily, but DeFi is still new and it will probably undergo some changes in the future, especially regarding oversight and regulation.