Fundamentals Of Decentralized Finance

DeFi, or decentralized finance, is a rapidly growing sector that utilizes the power of blockchain technology to enable fast, cheap, and efficient financial services, without the need for a 3rd party, or costly intermediary.

To participate in the DeFi revolution users interact with decentralized applications, or DAPPs, essentially collections of smart contracts governing DeFi protocols, which ensure the automated and permission-less environment for participants. In this setting, users can trade, farm, speculate, and engage in a growing number of activities, without the need for KYC or other identification.

Considering the DeFi sector is still in its infancy, key innovation is occurring at a rapid rate and users can benefit from the high yields that are currently available (dwarfing rates from traditional finance).

Decentralized finance, or DeFi, is a catch-all term for a growing number of financial services built on the blockchain, that allow users to capture high yields, with low fees.

Properties Of Decentralized Finance

Trust-less - Because DeFi protocols are governed by autonomous smart contracts, a trust-less environment is created, without the need for a third-party.

Permission-less & Censorship resistant - Anybody with a wallet and internet connection can use and build decentralized applications on the blockchain, no matter their geographical location, orientation, race, etc...

Transparent - All actions on the blockchain are verifiable, with the code available for audit by anyone, at any time.

Decentralized & Global - Unlike a centralized network, there is no single point of failure on the blockchain, with many global nodes securing the network.

Programmable & interoperable - DAPP's and smart contracts are programmable, allowing for interoperability between the various defi blocks, which pushes innovation, and provides high yields for users.

Non-Custodial - Decentralized finance requires users to control their own funds, in their own wallet, without any support or intermediary. Although this makes for a better, cheaper, more efficient user experience, there is a learning curve.

There is a growing need for DeFi and the services it offers, whether to help bank the un-banked, resist government suppression or simply stave off the effects of inflation

Centralized (CEX) VS Decentralized Exchanges (DEX)

CRITERIA	CEX	DEX
User Privacy	Not Anon - Personal Data	Anon
Liquidity	Highly Liquid	Lower Liquidity
Security	Not secure	Highly Secure
Censorship	Regulated & Censored	No regulations/censorship
Funds	Exchange controls funds	Non-Custodial

In Decentralized finance, smart contracts replace traditional financial institutions and costly intermediaries

Use-Cases For Decentralized Finance

Asset Management - A wide range of asset management tools and services.

Decentralized trading & Speculation - Automated, permission-less, and fully decentralized.

Lending/Borrowing - Smart contract governed lending with cryptocurrency collateral, allowing holders to put their assets to work.

Tokenization of Assets - Tokenization of real world assets, such as property/real estate.

Faster Solutions To Legacy Payment Systems - Cheap, global payments in an instant.

DAO's ( Decentralized Autonomous Organizations) - Community governance of funds, and collective decision-making to achieve financial aims.

Prediction Markets and betting - Leveraging smart contracts for immediate resolution upon event trigger.

And much more...