What is DeFi?

Understand what decentralized finance (DeFi) is and learn what differentiates it from centralized finance (CeFi)

Abishek Dharshan avatar
Written by Abishek Dharshan
Updated over a week ago

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.

🔖 Learn more:

Did this answer your question?