Welcome to: DeFi Dive. In this blog, we’re going to explore the world of DeFi, aka Decentralised Finance. I will be discuss the leading developments in the field and highlight some of the most interesting and innovative projects that I come across. My focus will be primarily more on the lesser-known projects to help them get the exposure they deserve. Due to the increased influx of newcomers immersing themselves into the overwhelming world of crypto, I will try to keep this blog easily digestible for people that are new to DeFi.
DeFi has been undergoing immense growth in recent times, with billions and billions of Dollars continuing to make its way into the sector. But, what is it actually? To answer this question, we have to look at what ‘decentralisation’ is first. Decentralisation is the process of creating a system where there is no central entity. To illustrate, the banking system as we know it now is centralised. To be able to make a fiat transaction from your bank account, one must do so via the centralised entity; your bank. Through decentralisation, this centralised entity is taken out of the equation. A decentralised finance system would allow you to interact with your finances without the need of a ‘middle-man’ bank. For example, to be able to take out a loan in the traditional financial system, you would need to go to the bank and the bank would need to give you approval for the loan. In DeFi, you could take out a loan without the need of someone else approving it. All you would need is to provide collateral for the loan and you can arrange it yourself any day of the week at any time (not only during business hours, as would be the case in the traditional financial system.) The only requirements to participate in DeFi are: a stable internet connection and your private wallet key phrase for you to access your finances. DeFi gives you the tools to be fully in control over your assets and finances, no matter what situation you are in geographically, politically or socially.
With the growing scandals throughout the years regarding money-laundering schemes and various other shady practices tied to banks such as Deutsche Bank, Goldman Sachs, HSBC , more people are coming to the realisation that the centralised banking system that we have is extremely dysfunctional and rotten to its core.
Until the emergence of DeFi, there wasn’t really a viable alternative to the centralised banking system, leading to acceptance of the notion that the banking system as we know it is the norm. Thanks to DeFi and all the innovation that it makes possible, increasing numbers of individuals are starting to realise that this doesn’t have to be the norm. DeFi gives us the tools to truly reimagine our financial system: It allows for us to imagine a system where transparency, security, access and innovation are central.
Now, what does a decentralised system look like?
This is where the emergence of DeFi comes into play. DeFi as it’s understood now can be seen as an umbrella term that encapsulates a wide range of protocols, digital assets, decentralized applications (dApps) that are built on the Ethereum blockchain. The term DeFi itself is not solely connected to Ethereum, but Ethereum is as of now the most developed blockchain with the most active developer community that already provides working applications. There are other blockchain projects, such as Polkadot, that attempt to overtake Ethereum as the leader in the field, but it remains to be seen if they or any other project will be able to do that.
DeFi has made things possible that were be considered completely impossible beyond the widest stretch of one’s imagination. With the rise of Ethereum and the massive community development it has seen in recent years, various protocols have allowed for decentralised financial practices like lending (AAVE), insurance (Nexus Mutual) , dispute settlements (Kleros) , decentralised exchanges (Uniswap), all without the need of a central entity facilitating them.
The potential of DeFi in terms of revolutionising the financial system is seemingly limitless & the advantages of a decentralised financial system truly are immense, solving an innumerable amount of issues that are embedded in our the current financial system.
In the next posts of DeFi Dive, I’ll be starting to look at specific projects that have grabbed my attention and discuss the innovation they are looking to achieve. Thank you for your support.
