With the rise of decentralized finance and its growing potential, more and more people are asking the question: What is Decentralized Finance?
Decentralized finance (DeFi), known as “Open Finance” is an ecosystem of financial applications that are built on public and open-source blockchain networks such as Ethereum. The key difference with traditional banking and financial systems is that these applications and their ecosystems operate without centralized control. Decentralized finance enables anyone with an internet connection access to numerous financial services such as borrowing, lending, trading and more.
At its core, DeFi can be thought of as smart contracts — computer protocols running on an Ethereum Virtual Machine that securely execute financial logic, based on user interactions with the applications.
Currently, there are numerous DeFi protocols being deployed, some of which include MakerDAO, Compound, Uniswap and Synthetix. All of these protocols allow users to access financial services without the need of a bank or any intermediary.
One of the key advantages of DeFi is that it can be securely connected to other Ethereum applications. This means that users can interact with the financial applications, no matter where the user is in the world.
Until now such financial interactions typically required banks or some kind of financial institution to be involved. Decentralized finance applications allow users to do this securely and in a much more transparent way.
Another advantage of DeFi is that it allows users to have control over their funds which is something that can often be taken away from users with traditional financial services.
Overall, decentralized finance is becoming increasingly popular as it offers a vital alternative to traditional banking, one that provides its users with secure, transparent and innovative financial services.
In the near future, we can expect to see even more of these applications as decentralized finance continues to evolve and become mainstream. It is an exciting space to be involved in and with more opportunities on the horizon, people should stay tuned for what DeFi could potentially bring to the financial landscape in the future.
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