What is Decentralised Finance?
DeFi is a form of finance built on blockchain which means that it doesn’t rely on centralised financial outlets such as banks. This means that where banks and brokerages control the exchange of currency and other financial instruments, DeFi does not. Instead, it utilises computer programs categorised as smart contracts to make the transactions which alleviates the needs for intermediaries to confirm the security of the transaction. Blockchain after all is an electronic ledger of all transactions in relation to the specific trade.
DeFi in essence enables individuals to move, borrow and lend cryptocurrencies via their wallet which acts like a trading account.
When was DeFi first used?
MakerDAO can be argued as one of the first Crypto companies to use DeFi with their cryptocurrency Dai, a stablecoin which aims to keep its value to same as the rate of the US $.
Maker is in fact a permission less lending platform…built on Etherium. For those unfamiliar with Maker, the platform allows any user to autonomously take out a loan (denominated in Dai) by staking digital assets such as ether (ETH) as collateral.
Why is DeFi important for the future?
By removing the need for control from centralised institutions such as banks, the way these organisations operate will change in the future due to DeFi, meaning the financial system as a whole may work on a macroeconomic level instead of its current model.
What this ultimately means is that individuals who have never had the chance to obtain a bank account due to personal or economic instability, will have the change at building their own finance-based portfolio, particularly in countries where the rich-poor divide is exponential, where worth is not shown by the number at the end of an account.