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What & Why DeFi

DeFi (Decentralized Finance) is often misunderstood, and that’s due to the amount of abstraction that CeFi (Centralized Finance) has achieved to provide the low yields and bureaucracy that you’re accustomed to.

This is the first article in the DeFiByExample series. The goal is to bring DeFi to you with analogies, illustrations, and examples you already understand.

What Is DeFi?

Simply put, DeFi is an alternative system of finance built with cryptography, usually on blockchains to operate without middlemen.

Instead of trusting a central authority to deliver on promises while running ponzi schemes that you cannot ascertain or verify independently, you trust in the fundamental principles of mathematics and computer science: the fact that numbers don't lie and computers don't have hidden agendas when executing transparent code.

Even cooler, DeFi is open globally in an open-source finance setting where anyone with an internet connection and a crypto wallet can participate. no opening hours, no long forms to fill, and no waiting for approvals. You are in control of your assets 24/7.

The goal is simple:

  • Return financial power to individuals.
  • Make it wholesome, get rid of unneccessary intermediaries.
  • Opening up opportunities that were traditionally reserved for large institutions or high-net-worth individuals.

It’s finance without borders, bureaucracy, or gatekeepers.

Why DeFi?

DeFi for incentives and essence. Maybe nothing else other than the easy access to opportunities and yield that you’d hardly get as a CeFi user.

My first investment was a fixed deposit at a local bank back in 2018 and the APY was a meagre 6% with an illusion of certainty that I’d get my money back. Eventually I learned about apps offering 18% and while that was cool, the processes were a lot more demanding.

If that was DeFi, not only would I not need to visit a local bank with my ID and spend hours there, I’d most probably get higher than 6% APY on my deposit and I’d have access to underlying protocols powering my investment directly without needing a middleman.

DeFi is open, totally accessible and verifiable without no intermediaries. That’s why the big players have been trooping in looking for yield.

You need to understand what powers DeFi and how you can access these opportunities and that’s what’s next.