“Finance is not merely about making money. It’s about achieving our deep goals and protecting the fruits of our labor. It’s about stewardship and, therefore, about achieving the good society.” — Robert J. Shiller
The ethos of decentralized finance (DeFi) runs deep, attempting to recreate and improve upon the existing financial systems in an open, transparent, and permissionless manner. Ethereum has become the bedrock of this movement, fostering a whole new ecosystem of financial products without intermediaries.
Decentralized Finance, universally abbreviated as DeFi, is a revolutionary paradigm shift in the financial sector. It embodies the application of blockchain technologies, predominantly on Ethereum, to traditional financial instruments. The essence of DeFi is to construct a financial system that’s open to everyone and doesn’t rely on intermediaries like banks, brokers, or insurance agents.
Here are the core attributes that define DeFi:
- Permissionless: One of the cornerstone principles of DeFi is that these platforms, tools, and applications are open to anyone. Whether you’re a farmer in Africa, a developer in Silicon Valley, or a banker in Europe, you have the same rights and access as anyone else.
- Transparency: Unlike the ‘black box’ operations of many financial institutions, DeFi runs predominantly on public blockchains. This means that every transaction is transparent, and if you’re tech-savvy enough, you can audit the protocols or track transactions on your own.
- Censorship Resistant: Traditional financial systems can be geographically exclusive, and users might be denied access based on their location or socioeconomic status. DeFi platforms are designed to be censorship-resistant, ensuring that everyone can participate.
- Self-Custody: DeFi platforms give users control over their assets. You’re not depositing your money into a bank or a managed fund. Instead, you’re maintaining custody the entire time, which offers unparalleled financial sovereignty.
- Programmability: This is more on the technical side, but a crucial facet of DeFi. It means that…