DeFi is a system that has been disrupting the markets since the term was first coined in 2018. But what is DeFi?
It stands for Decentralized Finance, and it is here to challenge traditional finance, often referred to as Centralized Finance (CeFi).
To talk about DeFi, we must touch on the topic of cryptocurrencies.
As you might remember, cryptocurrencies are digital currencies that are not controlled by any governmental institution. Crypto transactions are recorded on a decentralized public ledger known as blockchain. This means that money can be transferred without the need of a third-party institution.
However, transferring money isn’t the only service in a financial system. There are also saving, trading, lending and borrowing, buying insurance, and many more services.
Today all those services are managed by centralized institutions such as banks, stock exchanges, or hedge funds. This is where DeFi comes in.
Its goal is to make each individual responsible for their own finance, taking the power away from centralized institutions.
So, using a decentralized platform, such as blockchain, as the foundation, and utilizing cryptocurrencies, which can be programmed for automated activities, DeFi is able to offer almost everything that CeFi can.
The idea isn’t complicated, but it raises many more questions such as how does DeFi work? or why is it necessary?
We will cover this and much more in the upcoming articles so stay tuned!
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