Its user base has grown past 1 million and total value locked (TVL) has seen a 20x hike in 2020 alone. Funds can be transferred within minutes, if not seconds, that too without fees imposed by banks or financial companies. The emerging financial technology secures investors’ money in a secure digital wallet instead of storing it with a bank. The broad umbrella term DeFi encompasses a lot of different functionalities and applications void of any control by a single entity. Decentralized exchanges like Uniswap, interest rate protocols like Aave, lending protocols like MakerDAO, have emerged at the frontier. By 2020, the world saw an unprecedented explosion in new centralized and decentralized financial protocols on Ethereum. There are usually no minimum transaction amounts, no paperwork involved, complete transparency and auditability when it comes to DeFi transactions.ĭeFi as a concept started shaping in 2013, with Mastercoin’s Initial Coin Offering where they applied a new mechanism of fundraising. In a way, we can say that that DeFi is the decentralized, blockchain-based version of traditional financial institutions like brokerages, banks, and exchanges. In terms of market capitalization, Ether comes only second to Bitcoin.ĭeFi refers to the financial services technologies typically built on the Ethereum blockchain. One such decentralized, open source blockchain is Ethereum, that comes with its own cryptocurrency Ether (or ETH). This makes transactions faster, more affordable, more transparent, and more accessible.
These smart contracts are code-based agreements containing transaction details according to which people purchase, sell, lend, borrow, and trade cryptocurrencies without intermediary involvement. The protocols, also called “smart contracts” built on blockchain transactions are also decentralized. Blockchains themselves are decentralized ledgers that store transactions without any involvement of central authorities, such as traditional banks. What is Decentralized Finance?Īs mentioned earlier, DeFi stands for Decentralized Finance, a name it has been given because of its underlying blockchain technology. The use cases of DeFi have today expanded beyond simple lending and trading as the phenomenon becomes the best choice for those seeking investments in alternate, non-conventional channels. DeFi is not just a new way to buy cryptocurrency, although you’ll find many DeFi tokens alongside cryptos like Bitcoin on the major crypto exchanges like eToro.
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