The Crypto 101 Show
The Crypto 101 Show

Episode 7 · 2 months ago

What is DeFi or Decentralized Finance?


What is DeFi or Decentralized Finance? An intro to DeFi -

I need to start off by saying this is not financial advice so if you are looking for that this show isn’t for you. The content of this podcast episode is for informational purposes only. The opinions expressed here are not meant to be taken as financial, investment, or any other advice.

Right off the bat DeFi or decentralized finance is the competitor to traditional banking and provides new financial instruments that are a mirror of their traditional finance counterparts. DeFI is making its way into a wide variety of simple and complex financial transactions. It’s powered by decentralized apps called “dapps,” or other programs called “protocols.” Dapps and protocols handle transactions in the two main cryptocurrencies, Bitcoin (BTC) and Ethereum (ETH).

We've discussed in previous episodes the difference between centralized and decentralized. Centralized meaning that there is a central point and decentralized meaning there’s no central point of the network and it’s spread over different nodes. DeFi is short for “decentralized finance,” an umbrella term for a variety of financial applications and encompasses so much of the cryptocurrency world. DeFi can be used for lending, borrowing, insurance, asset management, etc. These are perfect examples of the capabilities of a decentralized ecosystem.

In its simplest form, DeFi is a blockchain-based financial infrastructure, and generally refers to a collection of protocols built on a public smart contract platform such as Ethereum. DeFi is based on decentralized applications (DApps) and open protocols, instead of requiring brokers such as brokerage firms or centralized administrators such as banks. Let's also see the advantages and disadvantages of DeFi.

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