Defi typically known as Decentralized Finance or Open Finance aims to take all financial services and putting them in a Blockchain. It provides services like lending, trading, insurance, and more.
BUT WHY?
Taking example of the current situation of the centralized banking system, suppose you deposite some amount of money to receive interest. The Bank will take your money and will lend it to someone else and will receive a higher amount of interest.
It breaks the transparency as you don't know what is happening to your money. You trust banks as a third party which increases privacy concerns.
Now, Think of a way by which you can use all the services provided by a bank without a bank as an intermediary. You always know how your money is used. The solution is Defi which does the same but in a more sophisticated manner and build even more complex financial system.
Understanding the Ecosystem 🧐🧐
Defi can be better understood by features.
Permissionless
This means it is open to everyone and anybody can participate with any specific permission.
Decentralized
The Code of entire Dapps built using principles of Defi is open-source and accessible to everyone. It is distributed and creates the proper peer to peer environment for everyone to use.
Transparent
As soon as you lend some crypto to anyone. You will be able to keep an eye for what your money is used for. It may invade privacy but all the transactions are pseudonymous. Hence, no personal details are broadcasted to Blockchain.
Programmable
It is one of the fundamental things by which Defi is even made possible to us. Dapps are programmed on Ethereum Blockchain as it is flexible and scalable.
Taking a look at the dashboard of DeFi Pulse.
We can observe the amount of money locked in Defi Dapps. Also observe the different types of Applications like based on a particular purpose like lending, derivatives, assets, and more.
What are these categories?🤔🤔
NOTE:
This will be a series for understanding everything about Defi. So, follow along to see what
revolutionary impact it can bring to current Digital Banking services.
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