Section 7 // ●●●●●●○ Level: Easy Quick Links: 4: Wallets | 5: Tokens | 6: NFTs Dashboard: Web3 Starter Pack |
<aside> 🥡 KEY TAKEAWAY Decentralized Finance are financial instruments which do not rely on intermediaries (banks, brokerages and exchanges) by using smart contracts on a blockchain.
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DeFi is abbreviation of Decentralized Finance - emerging financial technology based on secure, distributed ledgers.
The DeFi system removes the control that banks have on money and financial products and services.
👉 DeFi eliminates the fees charged by banks and financial institutions for using their services
👉 User keeps the money in a secure digital wallet instead of a bank
👉 Anyone connected to the Internet can use DeFi without approval
👉 Transferring funds takes seconds and minutes, instead of days and weeks
By eliminating intermediaries, DeFi allows people and business to conduct financial transactions which are accomplished through peer-to-peer financial networks that use security protocols, connectivity, software and hardware advancements.
Users only need an Internet connection in order to trade, lend and borrow using a software that records and verifies all financial actions in a distributed financial database.
Transactions are recorded in blocks and then they are verified upon a consensus mechanisms by other users.
<aside> 💡 DeFi does not provide absolute anonymity. Transactions don’t have the user’s name but they are traceable by entities that exist to protect people’s financial interests (governments, law enforcements).
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DeFi is designed to use cryptocurrency for transactions. The infrastructure and regulations are still under development and debate but much of the concepts revolves around stablecoin - cryptocurrency backed by an entity or pegged to fiat currency.