Understanding the basics: What is DeFi?

Decentralized finance, often referred to as DeFi, is a relatively new sector in the field of cryptocurrencies and blockchain technology.

DeFi is based on the principles of decentralization, which allows you to expand the characteristic features of the blockchain by adding new features and providing financial services, usually controlled by central organizations. The basis of DeFi is smart contracts that support decentralized applications (dapps) and protocols. Many of these applications were originally developed on the Ethereum platform, and most of the entire ecosystem (TVL) is concentrated there.

DeFi works without the need for permissions and can be combined to create new applications. Various services are provided in this sector, such as lending, investing, trading and the creation of markets, which are controlled by the masses and not by central authorities.

DeFi solutions run on different blockchains, and their ecosystems consist of participants interacting with each other in P2P mode. This interaction is facilitated by distributed registries and smart contracts that support the verification system. The structure of this financial system is based on programmable rules, which eliminates the need for intermediaries such as banks.

This allows users to borrow funds using certain cryptocurrencies as collateral, which is blocked in a smart contract, and receive other assets in return. Collateral assets remain blocked until the loan is repaid.

The advantages of DeFi in the digital economy

The growth of DeFi in the digital economy brings many benefits that are changing financial systems around the world.

One of the most significant advantages of DeFi is its accessibility. This open source system provides financial services to everyone with internet access, regardless of their location. This is a huge step forward for people from regions where access to traditional banking services is limited, and opens them up to financial opportunities that were previously unavailable.

Another important advantage of DeFi is its availability around the clock, seven days a week. Unlike traditional banks and markets that have specific business hours, DeFi platforms allow transactions to be carried out at any time, ensuring continuous and effective interaction with users.

The absence of intermediaries in the DeFi system also means that transactions can be faster, cheaper and, in some cases, more secure than with human intervention.

Moreover, DeFi promotes financial independence. It gives users full control over their assets, eliminating the need to trust third-party organizations that can freeze assets or manage user funds. The transparency embedded in the DeFi protocols also increases the trust of users, as they can carefully study the open source code and feel confident in the transparency of the system.