Blockchain & NFTs

What is decentralized finance (DeFi)?

June 2, 2022

Overview Decentralized Finance

Decentralized finance, also known as DeFi, is a fast-growing sector of the blockchain ecosystem.

DeFi aims to creates decentralized financial services and other products that are non-custodial in nature, and do not rely on one central party, using smart contracts.

In these smart contracts, digital assets are deployed by users to perform a specific financial function.

DeFi Lexicon

Decentralized finance related applications are administered via online portals, called “dApps,” and are often supported by individuals who pool together assets in a “liquidity pool.”

Those that deposit assets in a liquidity pools “lock their assets” and often earn fees and/or automatically receive digital assets in the form of “governance tokens.”

The practice of submitting assets to a DeFI protocol is increasingly referred to as“liquidity mining.” The process of earning fees and/or governance tokens is referred to as “yield farming.”

The Emerging Landscape of Decentralized Finance

There is an emerging landscape of products and services in the DeFI ecosystem. Today, they tend to focus around:

- Decentralized Exchanges

- DEX Aggregators

- Yield / Asset Management Protocols

- Lending Protocols / Stablecoins

June 2, 2022