DeFi, or Decentralized Finance, refers to a financial system that uses cryptocurrency and blockchain technology to manage financial transactions, without relying on traditional centralized institutions like banks, exchanges, or brokerages.
The key characteristics of DeFi are:
Decentralization: DeFi operates on a decentralized, distributed public ledger (blockchain) where transactions are recorded and verified by network participants, rather than a central authority.
Peer-to-Peer: DeFi enables direct peer-to-peer financial transactions, such as lending, borrowing, trading, and earning interest, without intermediaries.
Transparency: The decentralized blockchain provides transparency and security, as all transactions are recorded in an immutable public ledger.
Accessibility: DeFi aims to democratize finance by making financial services accessible to anyone with an internet connection, without the need for traditional gatekeepers.
Some common DeFi applications include decentralized exchanges (DEXs), lending and borrowing platforms, stablecoins, and yield farming. These are powered by smart contracts on blockchains like Ethereum, which enable the automated execution of financial transactions.
Overall, DeFi seeks to revolutionize the financial industry by providing an alternative to centralized, intermediary-based finance, leveraging the capabilities of blockchain technology.