Lo-fi, hi-fi, DeFi? If you’ve followed the world of NFTs, blockchain, or cryptocurrency even a little bit, you’ve probably come across the term “DeFi.” It stands for “decentralized finance,” and it may just be the future of the financial system as we know it.
DeFi is still in its relative infancy. Similar to how the early days of the internet had a “Wild West” feel of basic chat rooms, rudimentary websites, and early online service providers, crypto enthusiasts say a growing number of blockchain networks, decentralized exchanges, and DeFi protocols are paving the way for the future.
But are they really creating the future of finance? And what does it mean for today’s crypto investors? Here’s what the experts say.
Decentralized Finance (DeFi) Defined
Decentralized finance refers to a financial system that is not built on or around a central figure or institution, and instead is powered by a number of distributed actors and organizations often working independently or in tandem.
For instance, the traditional financial industry (CeFi, or “centralized finance”) revolves around big key institutions such as the Federal Reserve, payments processors, and large banks. The DeFi space aims to sidestep those big players, allowing individual projects and teams to take on those roles.
“In the DeFi space, there’s no central authority to report to,” says Shirin Bucknam, co-founder of Crypto Witch Club, a Brooklyn-based online education community dedicated to blockchain and web3. “It’s really a radical new way of doing things.”
In reality, cryptocurrency and decentralized finance is drawing more and more scrutiny and attention from lawmakers and government regulators as public interest and adoption grows. Nevertheless, these decentralized ideals continue to inspire new crypto and other DeFi projects.
In the DeFi world, the incumbent intermediaries that make the financial system work are all replaced by software or code, called “smart contracts.” So when you execute a transaction, a smart contract handles the heavy lifting, connecting the correct parties and ensuring the transaction goes through. This is, by and large, how the cryptocurrency ecosystem functions, and one of the reasons DeFi continues to grow in prominence and importance.
“DeFi allows for applications, which are built using smart contracts — the idea behind DeFi is that all the products and services that are in the economy today can be self-executed using an automated code,” says Dr. Merav Ozair, blockchain expert and a fintech professor at Rutgers Business School.
To sum it up, DeFi is, in all, a collection of lending platforms, exchanges, and many other institutions that were designed and created apart…
Read More: time.com