Emerging Technologies
DeFi
Definition
Decentralized Finance (DeFi) is a blockchain-based form of finance that does not rely on central financial intermediaries such as brokerages, exchanges, or banks to offer traditional financial instruments, and instead utilizes smart contracts on blockchains.
Why It Matters
DeFi aims to build a more open, transparent, and accessible financial system. It allows anyone with an internet connection to lend, borrow, trade, and earn interest on their assets without needing permission from a traditional financial institution.
Contextual Example
A user can use a DeFi platform like Aave to deposit their cryptocurrency and earn interest, or to take out a loan, all handled by smart contracts on the Ethereum blockchain.
Common Misunderstandings
- DeFi is still a very new and risky space. Smart contract bugs, hacks, and extreme volatility are common risks.
- It is one of the fastest-growing sectors in the blockchain ecosystem.