What does DeFi stand for?

Decentralized finance

If you have ever been around folks who love Bitcoin and blockchain, you would have probably heard of DeFi. This short form stands for “decentralized finance”. But what does it really mean? Let’s break it down.

Decentralized finance is a way of handling money that does away with banks and other traditional financial institutions. Instead, it uses decentralized apps that run smart contracts on the blockchain.

One of the main goals of DeFi is to make financial products and deals available to anyone without the need for a bank or brokerage. In the real world, DeFi is all about transactions that are based on blockchain. These transactions are carried out through computer programs known as smart contracts.

Every single transaction is saved on the blockchain. In simple terms, the blockchain is just a list of transactions that is used to confirm that someone owns the assets they say they own.

The ‘decentralized’ in decentralized finance points to two key things. First, it refers to how DeFi aims to spread out financial markets. Second, it refers to how the programs and data that make DeFi work are shared across many computers instead of being stored in one central location.

Even though people often use DeFi when talking about cryptocurrency markets, it can be used for almost any kind of financial transaction. This happens on a DeFi platform.

Example for using ‘DeFi’ in a conversation

Hey, have you heard about DeFi?

Yeah, it stands for decentralized finance!

Exactly! It’s all about using blockchain and smart contracts for financial transactions.

So, it’s like doing transactions without involving traditional banks or brokerages?