DeFi
What Is DeFi
Decentralized Finance (DeFi) is a financial system that leverages blockchain technology to offer a variety of traditional financial services without intermediaries. Unlike traditional finance, which relies on centralized institutions such as banks and brokerages, DeFi allows individuals to interact directly with financial services through peer-to-peer networks and smart contracts.
Blockchain technology, a distributed ledger that records transactions transparently and immutably, is what underpins DeFi. It ensures that all transactions are recorded in a way that cannot be altered, providing security and trust. Ethereum, a leading blockchain platform, provides the foundation for most DeFi applications as the first platform to support smart contracts. These self-executing contracts automate the terms of agreements, eliminating the need for intermediaries and reducing counterparty risk. The combination of blockchain's immutable ledger and smart contracts' automation capabilities are key to the security and efficiency of DeFi systems.
DeFi has given rise to many different financial applications. Decentralized exchanges (DEXs) facilitate peer-to-peer cryptocurrency trading without relying on centralized order books. Lending and borrowing on DeFi platforms enable users to earn interest on their assets or obtain loans through collateralized borrowing, often offering more competitive rates and flexible terms than traditional financial institutions. Yield farming allows users to earn rewards by staking or providing liquidity to DeFi protocols.