Decentralized Finance (DeFi)

DeFi stands for “Decentralized Finance” and refers to the ecosystem of financial applications developed on the basis of blockchain systems, a particular example is Ethereum.

DeFi can be defined as the movement that promotes the use of distributed networks and open source software to develop different types of financial services and products. The idea is to develop and operate open and permissionless financial DApps on the basis of a transparent and trustworthy framework.

Currently, the three largest features of DeFi:

Creation of monetary banking services (e.g. issuance of stablecoins)
Provision of peer-to-peer or pooled credit and lending platforms
Enable advanced financial instruments such as DEX, tokenization platforms, derivatives and prediction markets.
Within these three areas, there are several types of DeFi services. Some examples of products and use cases are financing protocols, software development tools, indexing, subscription payment protocols and data analysis applications.

Decentralized financing has many advantages over traditional financial services. By using intelligent contracts and distributed systems, the delivery of a financial application or product becomes much less complex and secure. For example, many dApps are developed on the Ethereum blockchain, which offers reduced transaction costs and lower entry barriers.

In summary, the DeFi movement is moving traditional financial products into the open source and distributed world, eliminating the need for intermediaries. The total cost of ownership is reduced. However, it remains to be considered that the market around DeFi is still young. Risks can exist in the regulatory area, but also in the still young infrastructure.