DeFi is the hottest trend in the cryptocurrency space in late 2020/2021. The hottest, meaning new and still poorly understood. What is DeFi actually?
DeFi is an abbreviation for Decentralized Finance, which refers to decentralized financial services. It is a system of currencies and platforms providing financial services that are carried out directly between users. DeFi is not subject to the control of state or supranational institutions and operates without intermediaries such as banks and exchanges. With DeFi, you can, for example, participate in a loan system: take out loans or grant them. Since the intermediary, i.e., the bank, along with its analysts, marketers, accountants, advertising specialists, and salespeople, is eliminated from the transaction, the borrower can do this more cheaply than with a traditional loan, and the lender can earn more than on a bank deposit. The role of the bank is filled by so-called smart contracts. You could say they are self-service applications: instead of a bank, there is code that sets the conditions and controls the parameters without human intervention.
DeFi transactions are recorded on the blockchain, which is accessible to every user. Naturally, there are no personal data, only the address of the cryptocurrency wallet, the amount, and the time of the financial transaction.
However, it should be emphasized that in the DeFi system, responsibility does not rest with any bank or brokerage firm but lies with the users. In case of error or loss of funds, they cannot turn to any higher institution.
Undoubtedly, DeFi cryptocurrencies were the brightest stars of the market in 2020. Chainlink, Uniswap, Aave, Synthetix are just the tip of the list. DeFi projects also started very favorably in 2021. If the idea of decentralized finance becomes as popular as its creators hope, we may find ourselves facing a revolution that the global financial system has not yet experienced.
It’s worth examining the increase in value of coins related to DeFi at the link coinmarketcap.com/defi/