What is decentralized finance (DEFI)?

Cryptocurrencies have exploded into a trillion-dollar industry today, sparking a wave of worldwide financial disruption. At the heart of cryptocurrencies is a remarkable history of innovation that goes back to the 1980s, with advancements in cryptography.

Since then, a series of events have shaped crypto space; the first cryptocurrency, Bitcoin, being the most prominent. Despite its spectacular growth in the past 12 years, financial services have very slowly appeared for Bitcoin mostly due to its inherent lack of stability and adoption.

Mainstream institutions won’t accept a Bitcoin loan because of its significant price volatility it makes Bitcoin a poor asset to plan any investment accurately.

Things change quickly in the crypto space, and decentralized finance (DEFI) is a current trend it's an exciting space to be, undoubtedly. If you're still unaware, let’s dig a little deeper into DEFI and learn more about it.

Decentralized finance (DEFI) explained

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. Smart contracts are automated enforceable agreements that do not need intermediaries to execute and can be accessed by anyone with an internet connection.

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.

Most DEFI applications today are built using the Ethereum network, but many alternative public networks are emerging that deliver superior speed, scalability, security, and lower costs.

Why smart contracts?

Most smart contracts offer Turing Complete programming languages that allow multiple parties to interact with each other, without needing a centralized intermediary. Blockchain’s ability to capitalize on smart contracts has made them ideal platforms to choose when building out financial applications.

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