Short for decentralized finance, DeFi is an umbrella term for a variety of applications and projects in the public blockchain space geared toward disrupting the traditional finance world. Inspired by blockchain technology, DeFi is referred to as financial applications built on blockchain technologies, typically using smart contracts.
DeFi consists of applications and peer-to-peer protocols developed on decentralized blockchain networks that require no access rights for easy lending, borrowing, or trading of financial tools.
Historically, central authorities have issued currencies that underpin our economies, which eventually gave them more power as more people began to trust them. However, trust has been broken from time to time, which makes people question the centralized authorities’ ability to manage said money. DeFi was developed based on the idea of creating a financial system that is open to everyone and minimizes the need to trust and rely on a central authority.
DeFi gave finance a new direction by enabling lending and borrowing. Widely regarded as ‘Open Finance’, decentralized lending offered crypto holders lending opportunities to gain annual yields. Decentralized borrowing allowed individuals to borrow money at a specific interest rate.