DeFi Explained

DeFi Explained

What Is Decentralised Finance (DeFi)?

Decentralised finance (DeFi) refers to financial software and applications developed on secure distributed ledgers or blockchains. DeFi leverages the same properties of Blockchain as has been by cryptocurrencies and much more. Blockchains have evolved significantly, and the promise of tokenisation and smart contracts means that more complex financial applications can now exist on these platforms.

 

The critical element of Defi is the decentralisation aspect, which means that the control that central authorities such as banks and financial institutions are removed from the money or financial services that DeFi applications operate.

However, whilst the need for central authorities is no longer technically required for DeFi applications to operate, it remains to be seen how legislation will affect the legal jurisdiction of these central authorities of DeFi applications.

Users of DeFi applications can expect some of the following

  • DeFi applications will eliminate the fees banks and financial companies charge for using their services. However, as Blockchain powers the applications, you can expect to pay gas fees (Ethereum) to the app provider for each transaction.
  • With a DeFi application, you will use a Digital wallet rather than a bank account to hold your money.  
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