What is DeFi?

A look into DeFi, crypto, web3 and what it all means.

DeFi (or “decentralized finance”) is a term used for financial services on public blockchains. DeFi can do many things that a bank can do — earn interest, borrow, lend, trade, etc. — but it’s quicker, doesn’t require paperwork, or a third party. DeFi is a global peer-to-peer (meaning between two people) system that is open to all.

Why’s DeFi important?

DeFi expands upon the basic premise of Bitcoin and creates an entire digital fee-free alternative to Wall Street. There is so much potential with DeFi to create a more open, accessible, and fair financial market that breaks barriers and is accessible to anyone with internet.

What are DeFi’s benefits?

  • Accessible: unlike traditional banking, you don’t need to apply for anything to “open” an account. Access is granted by simply creating a wallet.

  • Anonymous & safe: DeFi is considered safer in terms of anonymity, as name, email address, or any personal information is not required.

  • Flexible: you can personalize your financial assets with DeFi, being able to move them anywhere at any time, without asking for permission or waiting for long transfers.

  • Quick: Rewards and interest rates are updated rapidly and often significantly higher than traditional banking.

  • Transparent: all parties involved are able to see the full set of transactions, an aspect rarely granted by private corporations in traditional banking.

  • Interest rates

How does DeFi work?

DeFi is often engaged via decentralized apps (which feature special software). Unlike traditional banking, there’s no application needed to open an account. 

Here’s how some people are engaging with Defi today: 

  • Lending: you can lend out your crypto to earn interest and rewards every minute of the day instead of once a month.

  • Saving: you can put your crypto into savings account alternatives to earn interest rates better than traditional banking.

  • Trading: you can make peer-to-peer trades of certain assets, like buying and selling stocks without brokerage.

  • Option to link to stable coins

What are the downsides to Defi?

  • Fluctuating transaction rates on the Ethereum blockchain means that active trading can get expensive.

  • Depending on which apps you use and how you use them, your investment could experience high volatility – this is, after all, new tech.    

  • You have to maintain your own records for tax purposes. Regulations can vary from region to region.

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