An Introduction to Decentralized Finance

The Digitization of Finance

What Is Decentralized Finance (DeFi)?

Historically, banks and governments have centrally controlled the flow of money. They can print more of it if they want to (Inflation), they can stop you from borrowing if they don’t want you to (Censorship), they can even keep you from having a bank account (Permission). If they wanted to, at any time, they can seize your money or change/replace it and you would have no recourse. You gave your money to them, so they control it. On top of that, legacy finance is expensive - Payday loans go up to 500%, Credit cards can average 25%, even personal loans can cost you 18% of your value. These are high rates, but you pay them if you need to, because that’s the only option you have.

DeFi is a movement in the crypto industry which aims to rebuild the entire financial system in a digital and permissionless manner. This is achieved by disrupting the legacy finance system through offering financial services such as high interest-earning accounts, lending and borrowing, currency exchange, and much more. Instead of banks or financial institutions, there are just pieces of code that run and function as a bank. DeFi is open to anyone. There is no need to trust DeFi because you can verify it. DeFi is censorship resistant and much cheaper than legacy, centralized finance.