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A Comprehensive Guide to Decentralized Finance (DeFi)

Since its inception some years ago, the world of Decentralized Finance has boomed to an insane $94 billion (meaning this amount has been locked in as collateral across various implementations) industry.

With money flooding into DeFi, and the industry showing no signs of slowing down, many have started to gather a ton of new interest in it. Let us explore what DeFi is, how it can be used across various industries, and what specific solutions it provides to so many modern-day problems. 

A Comprehensive Guide to Decentralized Finance (DeFi)

First a brief definition. DeFi aims to leverage the use of technology to remove intermediaries between parties in financial transactions. DeFi leverages products like smart contracts (which are predefined agreements on the blockchain) and digital assets to create a more secure banking experience. Many people think of Decentralized Finance as mere cryptocurrencies, and while that is possibly the most popular example, there is so much more to this rich and diverse industry. 

DeFi is home to some of the hottest projects in the crypto sphere, and many in both the financial and entertainment industries. Most of these protocols are built on the worlds largest host blockchain, Ethereum, which also just so happens to be the parent blockchain of the worlds second-largest crypto asset: Ether. 

But how can DeFi change the world and revolutionize industries? 

Through DeFi, everything is digital which means it is largely remotely accessible and does not rely on any physical papers or documents that could be cumbersome or subject to tampering. Additionally, the deeply decentralized nature of DeFi (as the name so clearly suggests) allows for it to run systems that cannot be manipulated by an entity or government. DeFi systems are also built using an open-source code, meaning a more transparent setup and clear transfers of ownership and processes. 

For example, in the banking and finance world, DeFi strips banks and intermediaries of any control over someones money. That means that you no longer have to worry about banks going bankrupt or holding your money hostage (particularly in countries where capital control has been enforced). This proves that DeFi gives customers a hundred percent control over their own money and finances.

By removing intermediaries and the like, DeFi also works to reduce fees and processing times on transactions by making them cheap (or free!) and virtually instantaneous.

You no longer have to pay a hefty price tag to transfer money, and more importantly, it wont take several business days to process your request. DeFi also levels out the playing field by lowering the barrier to access. This is particularly relevant when we discuss things like loans; traditional financial credentials like credit scores and the like go out the window with DeFi. Another one of the biggest selling points of DeFi that is worth mentioning is also that it is censorship resistant due to the way it is structured. 

Common Uses of Decentralized Finance

In this section, we will see the exact implementations of some DeFi projects and how they provide solutions to financial and banking woes. 

Decentralized Exchanges 

Built on a technology referred to as the blockchain and one of the most popular implementations of decentralized finance, decentralized exchanges (also known as cryptocurrency exchanges) are platforms that allow for direct peer-to-peer cryptocurrency transactions to take place.

They allow users to buy, trade, and hold various cryptocurrencies in what is referred to as digital wallets. They provide a deeply decentralized, secure, and transparent online banking and trading experience for users. They are also borderless, which means cryptocurrencies on these decentralized exchanges can be traded across countries around the world. 

Decentralized Apps (dApps)

Exchanges are but one type of decentralized app, dApps can also be games that have nothing to do with finance at all! While other games built on blockchains will actually allow users to play for pay, merging the best of both worlds. All these decentralized apps function like normal apps for the most part, but they do not give one person or entity control over the network (as they are decentralized). They also leverage cryptography to keep the network secure. 


With so many different possible implementations and an endless realm of solutions to so many problems in the world of banking, DeFi has truly stepped up as a knight in shining armor in this industry that has lost a lot of confidence from users and customers. DeFi provides a new way of doing things, one reliant on the principle of more equal access for all, and one that is also heavily reliant on the digital world and technology thus making it more progressive, reliable, and a way for the future.