Decentralized finance is a bold new way to offer financial products and applications, providing a number of crucial benefits. But what are they?
Decentralized finance, otherwise known as DeFi, refers to financial applications built on blockchain technologies. It’s a movement encouraging the creation of financial products and services, in various forms, through the utilization of decentralized networks and open source software.
The goal of DeFi is to build and manage financial dApps over a transparent framework (i.e. permissionless blockchains and alternative peer-to-peer, or P2P, protocols.
DeFi’s primary functions (at present):
- establishing financial banking services (such as issuing stablecoins)
- operating pooled platforms for P2P lending and borrowing
- enabling tokenization platforms, DEX, and other advanced financial instruments
DeFi services come in numerous types across three three areas. Other product and use case examples include software development tools, subscription payment protocols, index construction, and more.
DeFi dApps can be utilized for AML, KYC, and alternative identity management solutions.
DeFi offers a range of advantages over traditional financial services. Utilizing smart contracts and distributed systems makes deploying financial products or applications simpler and safer.
For example, a number of dApps have been built on top of Ethereum, bringing lower barriers to entry and reduced operational expenses.
The DeFi movement is challenging conventional financial products and bringing them to a decentralized world of open source development. This eliminates the requirement for intermediaries, boosts security substantially, and reduces costs.