What is DeFi (Decentralized Finance)? Explaining DeFi in simple terms!

What is DeFi (Decentralized Finance)?

(image created with Bing Creator)

DeFi is short for Decentralized Finance and is similar to Tradional Finance, with the difference that everything is done using special programs and NOT traditional banks or any traditional way as we knew in the past.

That's DeFi!

Let's see some categories below and some applications that you may have already encountered, heard of or even used?

Categories of DeFi Protocols:

Trading Platforms (Decentralized Exchanges - DEXs):

These are platforms where users can directly trade cryptocurrencies with other users. Think of them as a crypto market place where you can buy/sell and earn in a variety of different ways. Important: No middle man is needed

Example: Uniswap, SushiSwap, PancakeSwap

Loan Tools (Lending and Borrowing):
Users can lend their cryptocurrency and earn interest or borrow crypto by putting up some of the digital as collateral. DeFi is using specific smart contracts that enable this process, again, without needing a middle man or an entity you can trust.

Example: Aave, Compound, MakerDAO

Stablecoins:
These digital currencies that are designed to have a stable value, and are usually tied to a regular currency like the US dollar. Their price remains stable, even if other crypto's price can fluctuate.

Example: DAI, USDC, Tether (USDT)

Yield Farming:
This could be explained as putting your crypto in specific vaults, and this will earn you specific rewards (think as if earning interests in a bank)

Example: Yearn.finance, Curve Finance, Harvest Finance

Insurance Tools:
You may also find insurance DeFi platforms, and they operate similar as if you get an insurance for your car or house. These platforms operate on a blockchain and have smart contracts in place for protecting your assets based on your preferences.
Example: Nexus Mutual

Asset Tokenization and Unique Items (NFTs):
Imaging being able to put one of your assets on the blockchain, verify its ownership and then sell it or simply own and increase its value. There are many different platforms where the users can own, create, trade, unice digital items (not necessarily art).
Example: Rarible, Decentraland, CryptoPunks

With this post I would like to cover the basics of what a user can do using DeFi.
There are many challenges at the moment and it requires a lot of research from the user in order to be able to use such applications with safety.

DeFi could simply be characterized as a digital playground where the users can do with money anything they want, but this time without ANY intermediaries. You can simply use a smartphone or a computer to be a part of it, and it is accessible to anyone with access to internet!

The possibilities, but also the challenges are endless. We will definitely be surprised, especially as we will see part of this technology that makes DeFi a reality, will be used by governments .. that will be certainly a challenge and we should keep our antennas open for what's coming in the future.

Whatever and whenever happens next, one thing is certain. DeFi has changed the way we think about money and how we use it!

Have you used any DeFi products/platforms? When did you first hear about it?

i.e. I created this post because one assignment I had was to analyze a DeFi Project.

I selected UniSwap and used Pictory to create a video out of a script that I wrote.

This is the outcome (I used the free trial - but I am thinking of using a subscription)

This video was created using pictory
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Posted Using InLeo Alpha