DeFi stands for Decentralized Finance, which refers to decentralized financial services based on blockchain technology. It eliminates the trust and constraints of any centralized organization or institution and enables participants to trade, financing, and other financial activities anytime, anywhere. DeFi reconstructs the traditional financial business through the blockchain technology, which is a disruptive innovation to the financial business.
In the traditional financial system, we completely rely on highly centralized trusted third-party institutions, such as Banks and Alipay, for transfer, remittance, lending, and other services. Also, there is a series of complicated procedures for identity audit and asset evaluation as required, which greatly reduces the efficiency of the whole process.
DeFi is an innovative financial system based on blockchain technology, which is not controlled by anyone entity or institution. Its peer-to-peer network system can realize immediate transfer, remittance, and other financial transactions from a personal account to a personal account. Users only need to provide their wallet addresses during the whole process, and the immediate transaction is realized without the circulation of intermediary institutions, which avoid the credit risks brought by the third parties.
Under the control and protection of the intelligent contract, both parties can complete the transaction without providing personal data. It is fast, convenient, efficient, and secure, and can be completed even among strangers.
In the meanwhile, DeFi also maps real-world assets and data to the chain through various means such as Oracle, stable currencies, and so on. DeFi brings traditional finance to the blockchain network, reducing collaboration costs, improving operational efficiency, and creating a borderless financial system.
After years of development, DeFi shows a phenomenal explosion. According to data, the total market value of all DeFi projects exceeded $11 billion as of August 18, 2020, generally increased 10 times, and the total funds invested on DeFi projects also exceeded $6 billion. Also, there has been derived various forms for DeFi projects, such as Oracle, DEX, stable currencies, payment & loans, etc., form a more diversified business model through their incentive characteristics with the blockchain technology. DeFi is likely to develop into a new and advanced financial world that can reflect the various aspects of traditional finance in the future.