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Home DeFi Basics What is DeFi (Decentralized Finance)?

What is DeFi (Decentralized Finance)?

DeFi (Decentralized Finance) is an emerging trend, one of the main buzzwords of 2020 that is bound to come up when people are talking about cryptocurrency.

But what is it, and why has it got so popular recently?

With the current macroeconomic environment of near-zero interest rates, lack of confidence in the current banking regime, recognition of digital assets as an emerging market and talks about CBDCs across the globe, people are being drawn to the exploration of alternative assets with promised higher yields and secure, incentivized holdings.

Decentralized Finance

In Layman’s terms, DeFi is exactly what it says on the tin; a way for people to interact with financial markets, without giving up control of their funds to the centralized institution. Using their own wallet, one can interact with various financial instruments, without giving up their custodianship but still reaping the rewards of yields, loans, insurance, payments etc.

 Decentralization means that there is no central point of control; the power is spread across each node and governance is a feature of the many with true democracy.

DeFi is a way for people to interact with financial markets, without giving up control of their funds to the centralized institution.

A well thought-out DeFi project with the right properties can allow people to hold the power of their own finances, receiving higher returns on financial instruments because there are no intermediaries ‘taking a cut’.

The peer to peer nature of the DeFi ecosystem can allow for returns that are not possible in traditional finance.

 Make no mistake though, many of the projects that fall into the ‘DeFi’ stratosphere preach decentralization and great returns, but are a ticking time bombs, ready to implode through unsustainably high yields, or the eventual recognition that market capitalization of the project is unreasonably bloated for a token that offers no utility.

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