Decentralized finance, also known as DeFi, has become one of the hottest topics in the digital asset markets in 2019. What is DeFi and why could it potentially become highly disruptive?
What Is DeFi?
Decentralized finance (DeFi) refers to a new form of finance that is open-source, digital, decentralized, and blockchain-powered to enable individuals to have full control over their finances when accessing financial services such as borrowing, lending, payments, insurance, derivatives trading, and more.
DeFi platforms leverage smart contract technology to provide decentralized financial solutions, such as digital currency-based peer-to-peer lending, dollar-pegged stablecoins, or investable tokenized asset baskets. The existing DeFi market is still at an early stage so we can expect more decentralized financial services that operate on a permissionless, transparent, and efficient manner on the blockchain to materialize soon.
Currently, the majority of DeFi platforms operate on the Ethereum blockchain, the world’s leading smart contract computing platform, but we can expect more to see DeFi applications on other leading blockchain networks in the near future.
Examples of leading DeFi platforms include the peer-to-peer lending platform ETHLend, the dollar-pegged stablecoin Dai, and the digital asset investing platform Set Protocol.
Why DeFi Matters
While the DeFi market is still in its infancy, it could be considered as a glimpse into what financial services may look like in the future if blockchain technology succeeds and evolves.
While the digital currency bitcoin enabled every individual in the world with an Internet connection to become their own bank, DeFi platforms have the power to provide anyone in the world with a wide range of financial services.
Like its pioneering predecessor bitcoin, DeFi gives power back to the individual and takes it away from large centralized organizations such as banks, insurance companies, central banks, and other financial institutions.
DeFi is, therefore, worth keeping an eye on as it could lead to a more transparent, decentralized, global peer-to-peer financial marketplace that has the ability to cater to anyone across the globe regardless of where they are located.
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