Earlier this year DeFi hit the headlines with a first billion dollars being locked up in the space. It is a revolutionary innovation that is disrupting the financial industry. However, many outside the crypto space probably haven’t heard of DeFi.
Bitcoin really is the first application of decentralized finance, but the term DeFi is being used for a much wider approach to the decentralization of the financial industry, and is being powered mostly through Ethereum smart contracts.
It really could become Ethereum’s killer dApp, and as we see with its rapid growth, DeFi is already starting to disrupt the financial industry.
What is DeFi?
Decentralized Finance, or as most call it DeFi, is what it says on the tin: finance that’s decentralized. Bitcoin was the first application of DeFI, but as stated earlier, the DeFi movement is thought of as what’s being built on Ethereum and other smart contract platforms.
The main objective of the DeFi space is to open traditional financial services to everyone. We’re already seeing this, and the growth of the space has been fantastic.
The DeFi dApps of today are replicating many of the services that we are used to through traditional banking. Lending, borrowing, investment, wealth management, and insurance are all industries that are being built into smart contract powered DeFi space.
But of course, there are no banks, or insurance brokers involved. Not in the traditional sense anyway. It’s all being done through peer-to-peer a network of interested people and institutions.
In fact, you and I can become a lender, and earn interest from somebody wanting a loan. It’s all collateralized loans for now, but things will evolve and credit based loans will become a thing in the DeFi space.