Decentralized finance is at the core of the crypto revolution. Or so the hype says.
In the year in which the world woke up to the reality of cryptocurrency as something other than a combination of techie plaything and tool of criminals, DeFi stood out.
With $100 billion invested, it’s far too large for mainstream finance to ignore. DeFi is, in many ways, cryptocurrency at its purist: A financial tool that needs neither banker nor bank, neither broker nor brokerage.
It is a wholly peer-to-peer way of doing what the financial institutions have been doing for centuries — providing a source of trust — without having to pay the tithe demanded by a trusted third party.
This is why it has gained so much attention. But theory is generally messier than fact, and that is certainly the case with DeFi.
Decentralized exchanges (DEXs) can offer trades and derivatives cheaper and faster than even “centralized” crypto. And the lending and borrowing platforms can provide both the lenders and the borrowers far better rates than any bank.
However, like any financial offering, DeFi comes with risks: The same old frauds and the new technological wrinkles of a technology with no corrections or do-overs. And there are also new products to understand: yield farming and liquidity pools, for example.
Over the course of these 10 articles, we’ll break all of this down in clear, coherent language for people new to crypto and DeFi alike. At the end, you’ll have a solid, basic understanding of how DeFi works, what the risks and potential rewards are, and what people are talking about when they sing its praises. You’ll know how to separate the hyped-up chaff from the investable wheat.
What is DeFi
DeFi is red hot. It is the most promising — and problematic — part of cryptocurrency FinTech. It is a $100 billion juggernaut that “anyone” says will be the downfall of big finance, replacing commission-hungry bankers with lean, mean smart contracts that let DeFi projects run…
