Seven Answers to Your Questions About DeFi

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You’ve probably heard the term “DeFi” floating around. Maybe your tech savvy friend mentioned it on twitter, or you heard about it in the news. You want to know more about the movement and potential innovations that DeFi can bring, but at this point are too afraid to ask. With a wide variety of voices and opinions getting plastered all over the internet, the community behind crypto and DeFi can be overwhelming at first, but it shouldn’t have to be! 

To help you get started on your DeFi journey, here are seven answers to important questions about DeFi to aid your understanding.

1. What is DeFi? DeFi is short for Decentralized Finance. Decentralized Finance is the foundation of crypto, and it has become a movement to decentralize traditional banking. In a nutshell? The future of banking will not involve centralized banks, brokers, or other well-paid middlemen. Instead, the collective trust of its engaged users and the technology backing the system will ensure interested parties can access available services so long as they have the capital to participate. You can still earn interest, borrow, lend and trade, but without the third party or extensive paperwork.

2. What are smart contracts? Smart contracts are self-executing contracts with the terms and agreements between buyers and sellers written in the code that runs on a blockchain. In simple terms, a smart contract executes DeFi transactions between users on the blockchain. One of the key benefits of smart contracts is the removal of the middleman, offering a more streamlined experience for pursuing a loan or trading assets on exchanges.

3. What is a DeFi app? DeFi apps, or d’APPs, are decentralized applications that run on public blockchains, the most common of which is the Ethereum blockchain. d’APPs provide users with the ability to manage their crypto finances through services that cater to the user’s financial goals and DeFi interests.  For example the app Maker allows users to lock in collateral like Ethereum and generate DAI as debt against that collateral, while an app like SushiSwap offers a space for users to purchase and sell digital assets. There are a wide variety of DeFi apps that attract different users for different reasons. To find the best one for your needs, consider your own interests and goals in the DeFi space.

4. What is a blockchain? A blockchain is a global network of computers that work together to form a ledger.  Open to any and all blockchain users, the ledger verifies transactions and provides a publicly available proof of authenticity that the transactions were completed on a particular blockchain.

5. How many DeFi applications are there? There are currently hundreds of DeFi applications. These include decentralized exchanges (DEXs), prediction markets, lending platforms, and so much more. Decentralized Exchanges such as Coinbase allow you to buy and sell cryptocurrencies through smart contracts, so no third-party broker earns a fee for facilitating transactions. Prediction markets such as Auger allow you to bet on event outcomes without intermediaries. Lending Platforms such as Aave allow users to borrow and offer direct loans with their own crypto holdings.

6. Does the technology behind DeFi have applications outside of currency? Yes, DeFi has the potential to disrupt any number of industries that could benefit from decentralization. DeFi gaming is a great example. By decentralizing gaming platforms with a play-to-earn model, people around the world are subsidizing their income with blockchain gaming. DeFi gaming is still extremely early to the scene, with innovations and new ideas appearing every day! 

7. ‍Where can I find trustworthy information on the DeFi movement? Sites such as Investopedia, The Defiant, and Decrypt are good starting points. Youtube series such as Cryptonized, Bankless, and Finematics are excellent resources to learn more about projects, protocols, and everything happening in DeFi. As always, it's important to do your own research with DeFi! DeFi is loosely regulated, and you can’t trust every post on the internet about certain coins or applications.

Bonus question and answer

What is the future of Defi? Tyler WInkelvoss, shares his vision for the future of DeFI — including SEC and Government Regulation and Enterprise blockchain — this Cryptonized interview  https://www.youtube.com/watch?v=pkK2e8l8qIk with SmartBlocks founder Mark Fidelman.