Concept: February 23, 2025. DeFi (Descentralized Financing) Explained
Decentralized Finance (DeFi) is a movement within the cryptocurrency and blockchain universe that offers an open, permissionless, and decentralized financial system. As opposed to financial systems, which rely on centralized institutions like banks or brokerage firms, DeFi operates on blockchain networks to offer financial services without intermediaries.
DeFi platforms use smart, self-executing contracts with the terms of the agreement (directly embedded into code) to include the following financial services: lending, borrowing, trading, and earning interest. This makes these financial services more accessible, transparent, and efficient. It also reduces costs associated with the traditional intermediaries such as banks or brokerage firms.
Important DeFi applications include decentralized exchanges (DEXs), which allow users to trade assets without a central authority, and lending platforms, where individuals can lend their crypto assets to earn interest or borrow against them. Other DeFi products include stablecoins (cryptocurrencies pegged to fiat currencies or commodities), and yield farming (earning rewards by providing liquidity)