DeFi, short for Decentralized Finance, is an umbrella term for different public blockchain projects and applications created to disrupt the traditional finance world. It aims to recreate financial systems like exchanges and banks using cryptocurrency. The main difference from the brick-and-mortar banks is that DeFi operates without a central service controlling the entire system like is the case with central banks and traditional financial entities.
Decentralized Finance and the Blockchain Technology
DeFi is inspired by blockchain technology using smart contracts, which are automated enforceable contracts that do not require intermediaries to execute. These contracts can be accessed by anyone with internet access.
Like traditional banks and financial institutions, DeFi lending gives users access to cryptocurrency lending on an interest-earning basis as a lending body. This is why lending and borrowing are the key uses for DeFi, offering a more attractive interest rate than traditional banking systems. With DeFi, users also have the option of becoming liquidity providers to a decentralized exchange.
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