Decentralised finance (DeFi)
DeFi is an open and global financial system built for the internet age – an alternative to a system that’s opaque, tightly controlled, and held together by decades-old infrastructure and processes. It gives you control and visibility over your money. It gives you exposure to global markets and alternatives to your local currency or banking options. DeFi products open up financial services to anyone with an internet connection and they’re largely owned and maintained by their users. So far tens of billions of dollars worth of crypto have flowed through DeFi applications and it’s growing every day.
What’s DeFi?
DeFi is a collective term for financial products and services that are accessible to anyone who can use Ethereum – anyone with an internet connection. With DeFi, the markets are always open and there are no centralised authorities who can block payments or deny you access to anything. Services that were previously slow and at risk of human error are automatic and safer now that they’re handled by code that anyone can inspect and scrutinise. There’s a booming crypto-economy out there, where you can lend, borrow, long/short, earn interest, and more.
DeFi vs Traditional Finance
One of the best ways to see the potential of DeFi is to understand the problems that exist today.
- Some people aren’t granted access to set up a bank account or use financial services.
- Lack of access to financial services can prevent people from being employable.
- Financial services can block you from getting paid.
- A hidden charge of financial services is your personal data.
- Governments and centralised institutions can close down markets at will.
- Trading hours are often limited to business hours of a specific time zone.
- Money transfers can take days due to internal human processes.
- There’s a premium to financial services because intermediary institutions need their cut.
A comparison
DeFi vs Traditional Finance
DeFi
Traditional Finance
You hold your money.
Your money is held by companies
You control where your money goes and how it’s spent.
You have to trust companies not to mismanage your money, like lend to risky borrowers
Transfers of funds happen in minutes.
Payments can take days due to manual processes.
Transaction activity is pseudonymous.
Financial activity is tightly coupled with your identity.
DeFi is open to anyone.
You must apply to use financial services.
The markets are always open.
Markets close because employees need breaks
It’s built on transparency – anyone can look at a product’s data and inspect how the system works.
Financial institutions are closed books: you can’t ask to see their loan history, a record of their managed assets, and so on.
