Decentralized finance—often called “DeFi”—refers to the shift from traditional, centralized financial systems to peer-to-peer finance enabled by decentralized technologies built on the Ethereum blockchain. From lending and borrowing platforms to stablecoins and tokenized BTC, the DeFi ecosystem has launched an expansive network of integrated protocols and financial instruments. Now with over $13 billion worth of value locked in Ethereum smart contracts, decentralized finance has emerged as the most active sector in the blockchain space, with a wide range of use cases for individuals, developers, and institutions.
The key advantages of DeFi protocols are their trustlessness, transparency, and programmability. Because DeFi applications are built on Ethereum, they can take advantage of the security, reliability, and immutability of the Ethereum blockchain. In addition, all DeFi data is stored on Ethereum’s public blockchain, making it readily available and transparent to everyone. And finally, because DeFi protocols are built on Ethereum’s smart contract platform, they are programmable, meaning that they can be automated and customized to meet the needs of users.
The DeFi ecosystem is still in its early stages, and it remains to be seen how it will evolve. However, the potential of DeFi to disrupt traditional financial systems is significant, and the sector is already attracting a lot of attention from developers, investors, and users.