Decentralised finance (DeFi) is a term for financial services without third party intermediaries. These financial services include everyday financial activities such as borrowing and lending, payments, money transfers, and everything in between.
Advocates believe that removing central intermediaries has the potential to solve persistent problems in traditional finance, such as a lack of inclusion in banking, high lending costs, opaque practices, or incompatibility between the different systems and services that we all use everyday.
How does it work?
DeFi uses blockchain technology to essentially automate the role of the third party, who is usually just there to ensure that both parties act according to the terms of the contract. This is done using smart contracts, which are digital instructions or agreements verified automatically on the blockchain that ensure the applications run correctly and fulfill their purpose.
Popular examples of DeFi applications include stablecoins and decentralised exchanges that put people in direct contact with others who want to trade currencies or cryptocurrencies without an intermediary.
