Decentralized finance, or DeFi, is an ecosystem of financial applications built with blockchain technology. The abbreviated term DeFi for decentralized finance was born in August 2018 in a Telegram conversation between Ethereum developers and entrepreneurs.
Characteristics
These distributed networks allow people to control their assets and data and transfer value from one person to another without the need to use intermediaries such as banks and other financial institutions. Single users who have keys in their wallets and manage their funds. The term used to describe this feature is that DeFi applications do not have your storage rights because they are not stored in your assets.
Transparent
The code of these financial programs is open to anyone to see and check. This is important because anyone can check the performance of programs and protocols and keep track of exactly where their money is.
Composable
Open source code also allows developers to work on other people’s programs, speeds up innovation and allows these programs to be turned into lego pieces using the value of others, hence the term money lego. If users don’t like how the app is configured, they can copy the code and create a new app.
Open
These networks are also global, meaning that there are no boundaries in this parallel financial system and everyone has access to it. It’s like the Internet, but on a global scale, instead of information being transmitted seamlessly and creatively, the same thing applies to money. The Internet has value.
Decentralized
DeFi protocols are based on mass blockchains like Ethereum. These blockchains, the rails of this new financial system, are run by thousands of nodes - computers running blockchain software have spread all over the world, making it almost impossible to censor or stop them.
In addition to this decentralization layer, DeFi platforms are designed for user-controlled and non-centrally controlled users. Users become the owners of their own financial programs and can participate in important decisions, including proposing change themselves and take advantage of their growth and success. No centralized party can unilaterally control the funds or change the rules of the game.
Open Finance
Most DeFi programs do not meet all of the features listed above. Surprisingly, given the name DeFi, the decentralized aspect is the most difficult to accomplish. Refusing to control the app makes it difficult for developers to react quickly when a problem arises because they cannot make unilateral changes without going through public consensus. This is difficult for applications that are still in the early stages of development, so teams often maintain some degree of control over their protocols.
Conclusion
Decentralization is a spectrum, and while all of the DeFi programs are decentralized at Clever Pty Ltd, they are striving for it, and teams are gradually giving up control over their protocols. In addition to decentralization, the main feature that most DeFi protocols meet and define the ecosystem is that these applications are open to everyone. All users need an internet connection and a blocked address. This is why the term Open Finance is often used instead of DeFi.