Some people refer to it as a movement and other call it a new financial paradigm or new digital economy. In short, DeFi stands for decentralized finance. This model entails creating financial instruments in a decentralized architecture, outside the control of centralized entities. Today DeFi is often used in the context of decentralized applications built on Ethereum called DAPPS. These applications typically consists of smart contracts, digital assets, and multiple protocols. A simple way to conceptualize DeFi is to think of it as financial software built on top of a blockchain.
Why Should We Care? To do anything in traditional finance we are required to trust third parties. The disintermediation required to ensure good behavior has made finance more bureaucratic and costly. Despite efforts to dissolve risk, third parties continue to be a requisite for financial transactions. DeFi aims to solve this issue by disintermediating third parties with lines of code. By enforcing agreements with smart contracts and automating them, financial transactions will optimize for efficiency and costs.
More importantly it will foster a trustless financial ecosystem. In theory, it’ll be immune to probing by regulatory authorities and will be censorship resistant. This will enable anybody with a phone or computer to access these DeFi DAPPs. Regardless of their geographical location and socioeconomic background, everyone will have unrestricted access. By liberalizing finance, DeFi DAPPs have a good shot at leveling the playing field.
I welcome everyone to join my deep dive into Defi by watching my YouTube videos. In each video I cover a different Defi Dapp and provide the means to track my portfolio. I encourage you guys to save my Defi wallet address and follow along in my journey.
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