What is DeFi?

DeFi stands for Decentralized Finance. It refers to the peer to peer world of finance powered by blockchain technologies and smart contracts. Banking products like Loans, Term Deposits / Certificate of Deposits, Currency Exchanges etc. are now being replaced by smart contracts running on blockchains which have much better terms.

Why is it so important?

DeFi reduces costs, improves transparency, is resistant to censorship, gets rid of the middlemen and the associated counter party risk. This is in direct contrast to Traditional Finance aka TradFi which is run by Banks, Wall Street and Central Banks who act as the middlemen and can manipulate financial rules to suit their own needs.

A video breakdown of DeFi

DeFi is beginning to disrupt the TradFi space. By using blockchain technologies and smart contracts people now have the power to remove the middlemen and create rules that benefit the people.

An example of this is the HEX project which uses the Ethereum blockchain and a smart contract to replace the traditional Term Deposits / Certificate of Deposits products offered by banks. Banks will be unable to compete with this moving forward as the project pays out an annual percentage yield of about 37%, based on an inflation rate of 3.69% and a depositor ratio of about 10%.

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.

%d bloggers like this: