Decentralized finance ("Defi") refers to applications and companies that offer or implement financial services based on blockchain technology.
Defi is thus the direct counterpart to conventional centralized systems, in which, for example, a central bank is the only institution with sole control over the entire system. However, the centrally organized system brings with it disadvantages, such as accompanying weaknesses (corruption), monopolization and bureaucratic obstacles, which can be eliminated by a decentralized system. The "decentralization" mentioned here can be implemented by Small Contacts. Here, a computer code automatically enforces the rules and stores all transaction data in the so-called "distributed ledger", a kind of distributed ledger, to which every user has access and thus there is no single file room.
This means that in the future, a loan can be issued much more easily and transparently through a smart contract. In fact, this means that the borrower is not completely dependent on a bank, as has been the case up to now, in terms of loan amount and term, for example, but has the same right as any other participant to receive the same conditions for a loan. The most important and so far best known services within a DeFI system are:
- Issuance of stack coins
- peer-to-peer payments
Users can access such services at decentralized applications (DApps), which currently mostly run on an Etherium blockchain
However, with all the new insights and benefits of the DeFi sector, it must be admitted that the complexity is still too high for ordinary users. The principle of simplification must be enforced, which is directly linked to the spread of the technology itself.