Decentralized finance is a subset of the crypto space that offers mainstream financial services, but without the need for a central authority or bank. Instead, users control their funds and make decisions based on their own needs. The movement began with lending and has expanded to cover many financial services. The aim is to compete with traditional financial service providers. These systems often harness open-source code so that anyone can create their own applications.
DeFi is a form of online finance. It uses blockchain technology and smart contracts to deliver financial products. Blockchain technology, used in this type of system, tracks all financial transactions and records them chronologically. It is designed to make financial transactions more secure and efficient. It also allows for more people to participate in financial services, and benefit from better interest rates.
This kind of financial system replaces third-party intermediaries, such as banks, by allowing people to borrow funds without credit checks or private information. Borrowers use cryptocurrency or a smart contract as collateral and receive a different asset in return. The collateral assets are locked until the loan amount is repaid. The technology behind this new type of lending is similar to peer-to-peer lending, and it eliminates the need for a middleman.
Decentralized finance lays the groundwork for a truly decentralized global economy. It is a leapfrog technology, and can provide the unbanked with access to digital assets. Decentralized finance will help build a more secure, accessible, and more transparent financial system. It also makes finance management easier, and eliminates wire transfers and overdraft fees.