DeFi is the shortened name for decentralized finance, meaning a fairly new and different financial system that works on its own, independent from centralized intermediaries like banks, insurance funds, etc. Through DeFi, people can transfer cryptocurrency peer-to-peer via smart contracts, without the need for other regulatory bodies to intervene.
DeFi also works on blockchain technology, the same technology used by cryptocurrencies, that aims to change the financial system as we know it and to make it more transparent. Last year, during the “DeFi summer”, this concept gained huge popularity as the number of smart contracts increased to more than $20 billion in just a few months.
This may not mean much when compared to the financial system we all know but DeFi doesn’t show signs of stopping anytime soon. So, to make it simple, DeFi or decentralized finance is a financial system that has no borders, open, and transparent. Here are more details about it:
More on DeFi
The origin of DeFi lies in Bitcoin which, in just 12 years, managed to create a completely new financial system based on blockchain technology which is now worth more than $800 billion.
It was also created as a necessity for people who do not meet the requirements to open a traditional bank account, for example. So, instead of keeping your money in a bank that has all the power over it, you keep your virtual money and do whatever you want with it.
Blockchain technology and advantages of DeFi
The most popular blockchain is Ethereum and the place where most DeFi contracts and apps are based. Many have called the Ethereum network “the next internet” because it can decentralize a lot of services and bring people from all over the world into one single place. The cryptocurrency of the Ethereum network is called an Ether token and it’s currently the second most popular crypto after Bitcoin.
Some of the advantages of DeFi include the possibility to transfer anytime from any place in the world, to anyone you want, without any regulatory body governing your activities. These transfers are incredibly fast and much cheaper than through a bank, for example.
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