Decentralised Finance (DeFi)

Decentralised Finance (DeFi) is a new movement promoting the use of blockchains and decentralised systems to offer different types of financial services and products, using digital assets and smart contracts. In comparison to traditional finance, DeFi does not rely on central authorities. Instead, it allows everyone to directly manage their own portfolio and engage in financial activities such as paying, investing, borrowing and lending. The DeFi movement is shifting traditional financial products to the open source and decentralised world, which removes the need for intermediaries, reduces overall costs, and greatly improves security. 

In comparison to traditional finance, DeFi is:

• non-custodial: no one is holding your assets, you are responsible for them;
• persmissionless: anyone can participate in the network and use the services, it is not limited by regulations or geography;
• trustless: you don't need to trust a given person or organisation; instead, you can trust (and check) the underlying technology of the contracts.

DeFi consists of various DeFi applications (DApps), financial smart contracts and protocols (mainly) built on the Ethereum blockchain with the purpose of storing and managing digital assets. Popular DeFi products include decentralised exchanges, lending and borrowing markets, tokenized physical assets such as gold, derivatives, prediction / betting markets, payment networks, insurance, etc. All these services offer a range of financial products that are similar to the ones found in FinTech. However, instead of building upon the traditional financial system with technology, DeFi trying to build a new system. 

Currently, the three largest fields of DeFi are:

• Creating monetary banking services (e.g. issuance of stablecoins, which refer to digital assets that try to replicate the value of the Dollar or Euro); 

• Providing peer-to-peer lending and borrowing platforms;

• Enabling advanced financial instruments.

All these new DApps in the DeFi universe allow users to effortlessly invest their money, all while ensuring transparency and security. It is, however, important to bear in mind that these services are still in their infancy and should be explored with caution.