Decentralized finance (DeFi) no longer relies on old, inefficient infrastructure, but uses cryptography, decentralization and blockchain to build a new financial system.
The system enables more efficient, fair and open access to well-known financial services to complete payments, loans and transactions.
Efficient – Even though counterparties may be located in completely different geographies with different laws and regulations, all operations are processed almost instantly. Best of all, most DeFi protocols can be performed with no human intervention or minimal human involvement.
Fair – All services are completely permissionless and uncensored.
No permission required – anyone with a browser and internet access. No document verification, no proof of income, no nationality or ethnicity. Everyone is treated equally.
Unrestricted by censorship – no other party can deny us access to the service. Even bad actors cannot change the rules of a fully decentralized system.
Open – Anyone can build new Defi applications and contribute to the ecosystem. Contrary to traditional finance, new applications can leverage existing protocols and build on existing solutions.
Most importantly, everything on the blockchain is transparent and visible. Transaction volumes, outstanding loans, total debts… all these can be checked on the blockchain for reliable answers. Also, these numbers cannot be tampered with.
The invention of Bitcoin, Ethereum and their underlying technologies made this possible.
In particular, Ethereum, as a smart contract platform that can create arbitrary financial applications, is the blockchain of choice for the vast majority of DeFi activity.
What’s next for us?
DeFi is an interesting idea with trillion-dollar potential. If we compare DeFi with the traditional financial system, it is not difficult to find the fatal attraction in DeFi.
As you can see, some DeFi projects have already replaced parts of the centralized crypto-economy, and it won’t be long before it will start replacing traditional banking and insurance as well.
Right now, the financial system needs to be repaired—to make it more transparent, open, and efficient. Otherwise, 20 years from now, if we don’t wrap up the broken financial system, we’ll be paying for our stupidity right now.