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DeFi is short for “decentralized finance,” and is a movement encouraging alternatives to traditional, centralized forms of financial services, which are known as TradFi.

DeFi consists of financial applications made on top of decentralized blockchain networks. Most DeFi apps are currently built on Ethereum, but other chains are gaining traction as well due to lower gas fees.

The most popular DeFi use case are:

    • Lending and Borrowing: Users can use decentralized lending to gain annual yields on their collateral. Borrowers and Lenders can directly interact with each other through smart contracts. Aave is the most well-known.
    • Typical TradFi products such as Options, derivatives etc are also being developed for DeFi.
    • Stablecoins: As the name suggests, stablecoins are cryptocurrencies that are pegged to the value of a stable asset like gold and the US dollar. Luna, MakerDAO are well-known.
    • DEX: A peer-to-peer exchange that allows buyers and sellers to trade cryptocurrency directly with each other without the need for an intermediary.
    • Cover/insurance: protection of investments using smart contracts.

See also DYOR

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