DeFi is short for decentralized finance, which is an umbrella term for services like investing, borrowing, lending, and trading based on decentralized, non-custodial infrastructure commonly built on the Ethereum blockchain. DeFi’s opposite is CeFi – centralized finance – such as traditional banks and most cryptocurrency exchanges.
Here’s a list of just a few things that differentiate DeFi from CeFi:
DeFi is programmable, which means that transactions are controlled by smart contracts and not people. In theory, dApps (decentralized apps) can run themselves with virtually no human intervention.
DeFi is transparent. Anyone can access the code to a smart contract in order to understand how it functions or search for bugs. All transaction activity is also publically viewable on sites like etherscan.io.
DeFi is borderless. Because dApps do not have any form of KYC (Know Your Customer) processes, they are immediately accessible to anyone with an internet connection, a smart phone, and an Ethereum wallet. This is why Zerion does not ask for user emails and does not have user accounts.
DeFi is permissionless, which means there are no gatekeepers restricting who can create and participate in DeFi services.
DeFi is trustless and non-custodial, which means there are no middlemen. Users interact directly with smart contracts and are therefore the sole custodians of their assets at all times.
DeFi is interoperable. Different applications can be built on top of each other and customized in new ways, regardless of who created them. The entire system is a bit like a box of Lego blocks – there is no limit to what can be built.
DeFi enables a customizable user experience. Users aren’t restricted to using only one interface. Smart contracts are like APIs that can be accessed through any platform.
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