We have witnessed how Cryptocurrency boom in the last five years. We never expected how fast this payment method and technology through Blockchain change the way how we keep our money and assets without the intervention of tha government. Look how successful cryptocurrencies are.
DeFi is a short term for " decentralized finance " an terminology umbrella for a variety of financial applications in blockchain or cryptocurrency geared towards disrupting and manipulative intermediaries.
DeFi was made through the inspiration from blockchain, the technology used in the digital cryptocurrency Bitcoin. Decentralized Financial Transactions which allows several entities to hold a copy of the history of transactions. It means it is not controlled by a single, or central source.
The idea and concepts of DeFi is somehow important because centralized systems and human controlled gatekeepers can limit the speed and safety of transactions while offering to it's users less direct control over their money. It is distinct in the way that, it expands the use of blockchain from simple value transfer to more complex financial use cases.
Cryptocurrency like Bitcoin Cash, Bitcoin and other digital traditional assets stand out from the legacy of digital payment methods, such as those owned and run by Visa and PayPal. In that way, they remove all Middlemen from transactions.
With decentralized transaction like Bitcoin and Bitcoin Cash, those institutions are cut out of the picture.
Source Credit: coindesk.com
Decentralized exchanges (DEXs): Online exchanges help users exchange currencies for other currencies, whether U.S. dollars
for Bitcoin or ether fir DAI . DEXs are a hot type of exchange, which connects users directly so they can trade cryptocurrencies with one another without trusting an intermediary with their money.
Stablecoins: A cryptocurrency that's tied to an asset outside of cryptocurrency (the dollar or euro, for example) to stabilize the price.
Lending platforms: These platforms use smart contracts to replace intermediaries such as banks that manage lending in the middle.
"Wrapped" bitcoins (WBTC): A way of sending bitcoin to the Ethereum network so the bitcoin can be used directly in Ethereum's DeFi system. WBTCs allow users to earn interest on the bitcoin they lend out via the decentralized lending platforms described above.
Prediction markets: Markets for betting on the outcome of future events, such as elections. The goal of DeFi versions of prediction markets is to offer the same functionality but without intermediaries.
In addition to these apps, new DeFi concepts have sprung up around them:
Yield farming: For knowledgeable traders who are willing to take on risk, there's yield farming , where users scan through various DeFi tokens in search of opportunities for larger returns.
Liquidity mining: When DeFi applications entice users to their platform by giving them free tokens. This has been the buzziest form of yield farming yet.
Composability: DeFi apps are open source, meaning the code behind them is public for anyone to view. As such, these apps can be used to "compose" new apps with the code as building blocks.
Money legos: Putting the concept "composability" another way, DeFi apps are like Legos, the toy blocks children click together to construct buildings, vehicles and so on. DeFi apps can be similarly snapped together like money legos to build new financial products