What is DeFi?

DeFi is short for Decentralized Finance, which was previously known as Open Finance. It is a broad term used to define a variety of financial applications of blockchain technology aimed at overriding financial middlemen.

It was born after the Ethereum network was created in 2015, why? Because most DeFi systems were based on the Ethereum Blockchain.

So formally, lets still say normally, transactions between you and a party (say a friend or a coffee shop) have a body standing in-between, either your banks, credit card companies or whoever controls your used financial service. And they have the power to decide if the transaction goes through or not and that transaction is recorded in their private ledger, which you don't see.

But, with the aid of DeFis, we don’t need these people. To understand how DeFis do this, we have to understand what smart contracts are.

Smart contracts are tools programmed with instructions, that automatically execute transactions when certain criteria are met, without the need of an intermediary (and it’s not even AI).

You can set a smart contract that completes a transaction when a certain token hits a certain price on tradingview.com or when the temperature of Frankfurt hits 33 degrees Celcius on weather.com depending on your intricacies.

Now we said, well I said, DeFi is a broad term, that is because it covers a series of applications, some of which include:

• Decentralized Exchanged (DEX): DEXs connect token holders directly with each other for trading cryptocurrencies with one another without having to trust their money with an intermediary
• Lending Platforms: These platforms make it possible to issue cryptocurrency-backed loans, to users without a credit requirement, by using smart contracts to replace intermediaries like banks and they allow lenders to earn interest on their loaned assets.
• Wrapped Bitcoins (WBTC): This allows bitcoin to be sent, by users, to users on the Ethereum network and allows users to earn interest on BTCs lent out via lending platform (see above)
• Prediction Markets: These are like the casinos of the cryptocurrency world. They allow users to bet cryptocurrencies on outcomes of real-life events e.g. elections, horse races… or even “wars”

And many more uses springing up by the day.

I’ll conclude on some asked questions:

• Is it safe to transact using DeFis? On a trusted platform, I guess….
• Can you make money investing through DeFis? Well, a lot of people have made a lot, so. I guess

Anyways, I hope this was a simple enough breakdown. Let me know what you think.