Decentralized Finance (DeFi) contrasts traditional finance by providing financial services without relying on centralized intermediaries. In traditional finance, various service providers impose conditions and regulations on users, controlling access and participation in their services. Examples include banks with minimum account balances and credit card issuers with the authority to cancel cards.
Key characteristics of DeFi include:
Decentralization: DeFi operates on decentralized platforms, such as Ethereum, allowing anyone with an internet connection and cryptocurrency to access financial services without permission.
Bitcoin and Ethereum: Bitcoin serves as a decentralized settlement network for value transfer, while Ethereum provides a platform for building cryptocurrency-powered financial services. Non-custodial wallets like Panaroma Decentralized offer users control over their assets without relying on third-party custodians.
DApps (Decentralized Applications): Most DeFi services, often referred to as DApps, operate on the Ethereum blockchain. These applications share common characteristics:
Open to All: Accessible to anyone worldwide.
Censorship Resistant: Resistant to disruptions or restrictions, providing uninterrupted service.
Non-Custodial: Users maintain control over their assets without relying on custodial entities.
Trustless: Transparent and open-source, reducing the need for trust in service providers.
Independent: Typically not owned by a single entity, often governed by a distributed group.
The goal of DeFi is to create open, censorship-resistant, and decentralized alternatives to traditional financial instruments. The building, financing, and governance of DeFi services involve several key elements:
Open Source Code: DeFi projects have open-source code, allowing third-party engineers to inspect and reuse components.
Token Sales: To raise funds, DeFi projects often conduct token sales, such as ICOs, where a specific cryptocurrency token is sold, representing governance weight or profit share.
Governance: DeFi projects are governed by a group of entities, potentially distributed and semi-anonymous, using proposals and voting mechanisms.
By embracing these principles, DeFi aims to revolutionize financial services by providing inclusive, transparent, and accessible alternatives to traditional finance.
If you have any specific questions or if there's a particular aspect of DeFi you'd like more information about, feel free to let me know!