In order to create a decentralized financial system, the first thing we need is an infrastructure for programming and running decentralized services. Using decentralized money, like certain cryptocurrencies, that can also be programmed for automated activities, we can build exchanges, lending services, insurance companies and other organizations that don’t have any owner and aren’t controlled by anyone.Ĭonfused? Don’t worry, we’ll break it down for you… Defi Component #1 – Infrastructure But what if we could decentralize the financial system as a whole in the same way Bitcoin decentralized money? That’s exactly what DeFi is all about.ĭeFi is a term given to financial services that have no central authority or someone in charge. This centralized financial system, or CeFi for short, has its risks – mismanagement, fraud, and corruption to name a few. Banks, stock markets, insurance companies, and other financial institutions all have someone in charge, whether it be a company or a person, that controls and offers these services. Today, our financial system and all its services are completely centralized.
For example, loans, saving plans, insurance, and stock markets are all services that are built around money and together create our financial system.
Aside from sending money to one another, there are a variety of services we use today. However, transferring money is only the first of many building blocks in a financial system. It can be transferred to anyone from anyone around the world, without the need for a bank or a financial institution.īitcoin is decentralized money, and if you’re just starting out you may want to catch our “ What is Bitcoin” video before moving forward. If you’ve read our previous posts you already know that Bitcoin is a form of money that isn’t controlled by any central bank or government. Here’s what I’ll cover:ĭon’t Like to Read? Watch our Video Guide Instead If you want a more detailed review keep on reading. It aims to replace centralized financial services with autonomous organizations that allow everyone to participate. What is DeFi SummaryĭeFi is a general term given to decentralized financial services such as decentralized exchanges, decentralized money markets, decentralized insurance companies, etc. This post explains in detail what DeFi is and what you should know about before getting involved. DeFi is becoming more and more popular as the main use case for cryptocurrencies.