What is DeFi?
DeFi (decentralized finance) represents a broad category of financial applications that are being developed on top of programmable blockchains. DeFi improves upon legacy financial systems and creates financial infrastructure that is accessible to anyone in the world with an internet connection. Today many of these new financial experiments are built on top of the Ethereum blockchain.
DeFi vs. Traditional Finance
Current financial systems (even in the most developed counties) can be slow, clunky, geographically restrictive, and have limited operating hours. Many of these institutions have been slow to adopt new technology due to a lack of competition and innovation.
DeFi is going to revolutionize finance in the same way the internet revolutionized communication. The internet tremendously improved how humans interact and send information, but initially lacked a native way of sending value. DeFi aims to become the financial infrastructure needed for a globalized economy by creating internet native financial products.
Ethereum enables anyone to programmatically control digital value through smart contracts. Smart contracts are pieces of code that can custody and reallocate assets based on certain conditions. DeFi smart contracts can easily replicate swaps, options, futures, bonds, and many other financial instruments which are executed and settled in a trust minimized manner.
Why is this important?
What's interesting is that anyone can write smart contracts and create new financial instruments such as money markets, exchanges and asset management solutions. The internet dis-intermediated traditional media over the last twenty years by providing wealth-building tools to content creators. DeFi is doing to finance what the internet did to the media by democratizing the creation and access of new financial instruments.