What is Decentralised Finance?

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DeFi is a new financial sector. It has been around for about two years but has only recently begun to see significant growth. Over the last year alone, the total value “locked” in DeFi exceeded 10 billion USD and continues to rise. Users are rushing into the space for many reasons, but primarily due to the high interest rates offered by DeFi applications, which have exceeded 2000% in some cases.

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This activity has drawn the attention of famous tech giants such as IBM which are now trying to bridge the gap between traditional finance and DeFi. Some DeFi applications have even become licensed and regulated, begging the question of how long it will be before DeFi applications are being used by the average person.

By the end of this article, you will have a firm grasp of what DeFi is, how it works, if DeFi is safe, and a few details about some of the most popular DeFi applications.

What is DeFi?

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DeFi is short for decentralized finance. The DeFi space is made up of dozens of applications which provide traditional financial services such as lending, borrowing, saving, and insurance. The primary difference between DeFi and centralized finance is that these services are not provided by a central authority such as a bank or insurance company. Instead, they are powered by a series of automated programs called smart contracts.

How does DeFi work?

Most applications in DeFi are built using Ethereum, the second largest cryptocurrency after Bitcoin by market capitalization. The Ethereum blockchain, which records cryptocurrency transactions, also doubles as a platform which allows for the creation of the aforementioned automated smart contracts. As mentioned earlier, DeFi applications fundamentally consist of multiple smart contracts working together. Read the full article on Decentralised Africa

Contributor: Daniel Krupka

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