While the applications of blockchain technology are explored in various sectors, one of the domains gaining maximum momentum is banking and finance. Decentralized Finance, commonly referred to as DeFi, is one of the most uprising trends of 2020 in the crypto and blockchain industry.
While the DeFi ecosystem started drawing attention by the end of 2019, it has received a massive boost since the beginning of 2020. The value of tokens locked in DeFi stood at nearly $1 billion in February 2020. In a period of just 6 months, the value of tokens locked in DeFi has boosted to more than $6 billion.
In this article, we are going to cover what is DeFi and what are the key aspects of the DeFi ecosystem.
What is DeFi?
DeFi refers to decentralized applications or dApps, built on the open-source blockchain networks (primarily Ethereum) that deal with finance. DeFi encompasses decentralization within the financial ecosystem. In a decentralized environment, individuals and institutions can access financial services in a transparent manner without any intermediaries.
The traditional finance sector is largely centralized and incorporates a wide range of intermediary organizations. From lending to insurance services, the current financial infrastructure is inaccessible to a quite number of individuals — according to the World Bank, 1.7 billion people are unbanked across the globe. DeFi facilitates a decentralized financial system that is more accessible as well as technologically advanced, through the tools of smart contracts and dApps.