DEFI is short for decentralized finance. It’s a term used to describe the shift from traditional, centralized financial systems to peer-to-peer finance enabled by decentralized technologies built on the Ethereum blockchain.
Whereas our traditional financial system runs on a centralized infrastructure that is managed by central authorities, institutions, and intermediaries, decentralized finance is powered by code that is running on the decentralized infrastructure of the Ethereum blockchain. Decentralized finance applications are built on Ethereum/Solana and a few other blockchain smart contracts, which are immutable pieces of code that run exactly as programmed and that cannot be censored or shut down by any central authority.
This means that, unlike traditional financial applications, decentralized finance applications cannot be shut down or censored by governments, banks, or other central authorities. They are also much more transparent than traditional financial applications, as all transactions and activities on the Ethereum blockchain are publicly visible.
What this all boils down to is that decentralized finance represents a fundamental shift in the way we interact with financial applications and services. With decentralized finance, we no longer have to rely on central authorities to manage our financial affairs.
Instead, we can rely on code that is running on the decentralized infrastructure of the Ethereum blockchain. This shift has the potential to upend the entire financial system. The Decentralized Finance (DeFi) movement is built on the promise of returning power and control over financial services back to the people. By using decentralized technologies, DeFi protocols and applications can run on a peer-to-peer network, which means that they are not subject to the same regulations or restrictions as traditional financial institutions.
This makes DeFi applications and protocols much more accessible to a global audience, as there are no geographical boundaries or KYC/AML requirements. And as the DeFi ecosystem continues to evolve and mature, we can expect to see even more innovation and growth in the space.