July 27, 2021

Exploring DeFi

An umbrella term used to describe financial apps in the digital asset and blockcha...

What is DeFi?

An umbrella term used to describe financial apps in the digital asset and blockchain space aimed at disrupting traditional finance.

How it started

Take a step back to 2008, millions of people around the world are dealing with the catastrophic effects of the global financial crisis. At the same time a revolutionary whitepaper is published in the niche field of cryptography – “Bitcoin: A Peer-to-Peer Electronic Cash System”.

The underlying technology of Bitcoin (blockchain) made it possible for anyone to send peer-to-peer (P2P) transactions with no middleman. In the years since inception, a rapidly growing ecosystem of financial innovation has continued to develop around the technology (DeFi).

Let’s have a look at some of the core components of DeFi

Stablecoin: a type of digital asset tracking fiat (govt. issued currency such as USD) or commodities (such as gold).

Smart contract: programs that run on the blockchain using customisable rules and conditions to define operations.

A better financial system

The underlying technology of DeFi can be compared to building blocks – there is limitless capacity for people to connect and innovate.‍

This is not to say there is no risk involved, rules and logic of DeFi apps are programmed by humans who are prone to errors. There could be flaws in the code, or hidden backdoors where developers essentially have a master key to make any change they like.‍

On the other hand, the underlying source code is (mostly) available for everyone to access, helping to scale and provide better security.‍

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