Apart from being a great tool for investors from all over the world, cryptocurrency and blockchain technology have been largely used to create a decentralized currency that’s independent of global financial corporations like banks. Decentralized finance, or DeFi, is a similar concept – utilizing this technology to cut away from those trying to control the system.
What exactly is DeFi and how to invest in it? Let’s find out!
What is DeFi?
DeFi is short for decentralized finance – a term describing a range of financial solutions that make use of cryptocurrency and blockchain technology to remove the middle man in finances. Just like cryptocurrency transaction history is embedded in the blockchain for more than one entity to see, so is DeFi aiming to remove a central source for controlling and gatekeeping finances.
While most cryptocurrencies can only be used for simple transfers between wallets, DeFi aims to go a step further. Apart from direct transactions, DeFi aims to decentralize loans, mortgages, insurance, betting, and more financial instruments. Many apps that forward the decentralized finance ideology are based on Ethereum – one of the world’s largest cryptocurrency platforms.
How does DeFi work?
The goal of DeFi is to make a variety of financial services independent from banks and other entities that strive to control the financial market, acting as an intermediary in every transaction, every loan, and every payment. DeFi goes a step further than cryptocurrency by introducing smart contracts – executable collections of code that interact with the blockchain according to a certain set of rules.
These smart contracts can be executed automatically, immediately forwarding a transaction of cryptocurrency between parties when the conditions are met. Thanks to these established conditions, smart contracts can find use in a variety of applications far beyond simple direct transfers, including investments and more.
Wondering how to invest in DeFi? The easiest way is with the right DeFi-based platform, like DeFi Earn by OSOM.