What is Decentralized Finance(DeFi)?

Part 1: Meaning and Benefits

DONGGYU LEE

[ What is DeFi ]

  Decentralized Finance (or simply DeFi) refers to an ecosystem of financial applications running on a blockchain network. Specifically, decentralized finance refers to a movement to create a transparent financial service ecosystem that can be used by anyone and operates without any central authority. Users interact with the ecosystem through peer-to-peer and decentralized applications (dapps). A key advantage of DeFi is its modular framework built on top of interoperable DeFi applications, which will create entirely new financial markets, products and services.

[ What are the main benefits of DeFi ]

  Traditional finance relied on institutions such as banks to act as intermediaries or courts to act as arbitrators. DeFi applications do not require any intermediaries or intermediaries. The code specifies resolutions for all possible disputes, and users retain control of their assets at all times. This reduces the cost of providing and using these products and provides a more frictionless financial system.

  Because the new financial service operates on the blockchain, it eliminates a single point of failure. Data is recorded on the blockchain and propagated through thousands of nodes, making censorship or potential service disruption virtually impossible. Also, since the framework of a DeFi application can be pre-built, running it becomes much less complex and much more secure.

  Another important benefit of such an open ecosystem is that it will be accessible to those who previously did not have access to any financial services. Because traditional financial systems rely on intermediaries to generate profits, their services are generally not provided to low-income communities. However, not only will DeFi significantly reduce costs, but it will also make a wider range of financial services available to low-income individuals.

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