DeFi

Decentralized Finance

A financial system that operates on decentralized blockchain networks, primarily Ethereum. It is an umbrella term for various financial applications and services that aim to provide an open, transparent, and permissionless alternative to traditional financial systems. Key characteristics of DeFi include:

1. Decentralization: DeFi applications run on blockchain networks, eliminating the need for intermediaries like banks or brokerages.
2. Open source: Most DeFi protocols and applications allow anyone to audit, use, or build upon them.
3. Interoperability: DeFi applications can interact and integrate, creating a more interconnected financial ecosystem.
4. Transparency: Transactions on DeFi platforms are publicly visible on the blockchain, ensuring transparency and accountability.

DeFi encompasses various financial services, including decentralized exchanges (DEXs) for trading cryptocurrencies, lending and borrowing platforms, stablecoins pegged to fiat currencies or other assets, yield farming and liquidity mining, decentralized insurance, prediction markets, and tokenized real-world assets.

The DeFi sector has grown significantly, with billions of dollars in total value locked (TVL) across various DeFi protocols since 2020. However, it is still a nascent and rapidly evolving space with potential risks, including smart contract vulnerabilities, regulatory uncertainties, and high volatility.

• Abbreviation: DeFi